China’s economy slowed sharply to 4.3 per cent in the second quarter, its lowest since 2022, weighed down by stagnant domestic demand and higher energy costs linked to the US-Iran war offsetting the robust export growth.

China’s gross domestic product (GDP) grew 4.7 per cent year on year in the first half of 2026, generating around 69.57 trillion yuan (about USD 10.25 trillion) in output, the National Bureau of Statistics (NBS) announced on Wednesday.

But the world’s second-largest economy expanded by 4.3 per cent in the April-June quarter, slowing from 5 per cent growth in the first quarter, falling below China’s annual growth target.

 

The first full quarter of GDP data since the start of the US-Iran war in February marks the lowest quarterly expansion since the end of 2022, the period when China emerged from its strict Covid-19 restrictions.

The GDP data came a day after official customs figures showed China’s exports surged by 27 per cent year-on-year in June, underscoring the economy’s growing reliance on overseas demand amid weak domestic consumption subdued by low consumer spending.

The Chinese government lowered its annual growth target to a range of 4.5-5 per cent, the lowest since 1991, in March, amid expectations that the revised target will provide policymakers greater room to respond to domestic and global economic challenges.

Releasing the H1 data, the NBS said the economy was facing “more external instability and uncertainty factors” and highlighted a persistent imbalance between strong industrial production and weak domestic demand.

The slowdown underscores the challenges as the economy continues to grapple with a prolonged property market downturn, subdued consumer confidence and rising external risks.

According to the official data, new home prices continued to decline in June, although the pace of the fall moderated to 0.1 per cent from the previous month.

Fabien Yip, a market analyst at investment platform IG, told the BBC that China’s businesses are absorbing higher energy and raw materials costs “because demand at the till is too weak to bear it”.

The situation will become more difficult to manage the longer the US-Iran war goes on, she added.

Customs data for June, which was released on Tuesday, showed that China’s tech exports were boosted by soaring global demand for semiconductors to power artificial intelligence (AI) data centres.

Surging demand for Chinese electric vehicles (EVs) also gave a major boost to China’s exports – with monthly car exports topping one million for the first time.

However, property investment, an entrenched drag on economic growth, fell 18 per cent in the first half of the year, compared with a fall of 16.2 per cent in the first five months, according to the NBS.

Industrial output grew by 5.3 per cent year on year in June, compared with an increase of 4.5 per cent in May.

China’s overall urban unemployment rate stood at 5 per cent in June, while unofficial data points to an unemployment rate among 16-24 age groups of over 15 per cent.

“Overall, the second-quarter data highlights a deepening divergence between domestic and external demand,” Tan Junyu, regional economist for North Asia at trade credit insurer Coface, told the Hong Kong-based South China Morning Post.

While export performance was being underpinned by AI hardware and green-tech demand, domestic consumption was being weighed on by the property slump, he said.

Su Jian, an economics professor at Peking University, said Beijing was unlikely to roll out broad-based, aggressive stimulus measures in the coming months.

That said, as investment growth continues to weaken and authorities seek to prevent systemic risks, Beijing could unveil further support measures centred on “new infrastructure” in the second half of the year, he said.

Releasing the data, Mao Shengyong, deputy head of the NBS, told the media that the growth pace is in line with the annual target.

Although growth moderated in the second quarter, the economy has remained on a stable footing, with its underlying trend toward innovation-driven and high-quality development unchanged.

Noting that the external environment has become more complex and uncertain, Mao said China’s economic resilience has helped the country effectively navigate risks and challenges, citing adequate energy supply, mild inflation and solid foreign trade performance in the first half.