China’s GDP Growth Hits Multi-Year Low Despite EV And AI Surge
The Chinese economy grew at its slowest rate since the height of the COVID-19 pandemic last quarter, as structural problems and geopolitical uncertainty continued to dog efforts to boost domestic consumption.
On Wednesday, the National Bureau of Statistics said the economy expanded by 4.3 per cent in the second quarter of 2026, as measured against last year, falling short of analysts’ expectations and the 5-per-cent growth logged in the first quarter. That’s the slowest rate since 2022.
“The policy debate now shifts toward how Beijing intends to secure its annual growth target,” said Hao Zhou, a Hong Kong-based analyst at Guotai Haitong Securities, referring to the 4.5-5 per cent goal set in March. “We expect policymakers to maintain a strong focus on supporting domestic demand, particularly consumption and infrastructure investment.”
Exports surged 27 per cent in June, with the value of all foreign trade hitting US$3.75-trillion in the first half of this year, a new high and a reflection of how much China has benefited from immense global demand for electric vehicles, batteries and computer chips.
Some analysts fear the economy is becoming increasingly unbalanced however, as heavy state support and private investment pours into high-tech while lower-value manufacturing and the job-creating service sector languish.
China ran a record US$1.2-trillion global trade surplus last year, drawing complaints from policymakers in other countries over their trade imbalances with the world’s second-largest economy. Many have pointed to heavy state subsidies, which they say contribute to an oversupply of manufactured goods that end up being exported overseas.
This week, the European Union suggested it could take emergency measures to rein in Chinese exports amid a ballooning trade deficit, including opening an anti-dumping investigation into Pekin duck.
While Beijing rejects any claims of “dumping” and strongly defends its industrial policy, Chinese policymakers have recognized a need to rebalance the domestic economy away from an over reliance on exports and boost spending.
A prolonged property slump has weighed on many families’ willingness to spend. Housing accounts for about 70 per cent of the wealth of Chinese households, far higher than in most other countries, such as Canada, where the comparable figure is 42 per cent.
In the past decade, amid fears of a dangerously expanding housing bubble, the government has significantly tightened oversight of the sector, reducing the number of so-called “ghost developments” occupied largely by speculators. While this has brought greater stability, it has also driven several property firms to bankruptcy and cratered the housing market in many provinces.
Investment in property was down 18 per cent in the first half this year, and new home prices contracted again in June, according to the latest statistics.
Younger people not yet on the property ladder are also facing problems. Youth unemployment has remained high, a legacy of crackdowns in the tech and education sector and new challenges emerging as a result of AI. In coming weeks, another 12.7 million graduates set to enter the job market.
Chinese consumers are also grappling with many of the same problems felt in other countries as a result of the war in Iran: rising fuel prices and inflation.
Despite campaigns in state media and government-run promotional schemes, what discussion there is of consumption online tends to be about how to reduce spending and save money, with users sharing tips on bargain hunting and how to take vacations on the cheap.
“Meaningful rebalancing will require more than trade-in subsidies and consumer incentives,” said Minxiong Liao, senior economist at GlobalData.TS Lombard APAC.
“Unless stronger fiscal support reaches households through higher social transfers and a more robust healthcare and pension system, precautionary saving is likely to remain elevated and any improvement in consumption will probably prove gradual rather than self-sustaining.”
With files from Alexandra Li, Reuters and the Associated Press
This article was first reported by The Globe and Mail
