China’s economy expanded just 4.3% in the second quarter of 2026, its slowest pace since the fourth quarter of 2022, missing analyst expectations and raising fresh concerns about the country’s growth trajectory.
The figure fell short of the 4.5% growth forecast in a Reuters poll and marked a significant deceleration from the 5% expansion recorded in the first quarter of the year.
Second-quarter growth also came in below Beijing’s full-year target range of 4.5% to 5%, described as the least ambitious annual goal in decades, amid trade tensions with the U.S. and the European Union.
Urban fixed-asset investment declined 5.7% in the first six months of the year compared to a year earlier, worse than the 4.9% drop economists had expected, with real estate investment plunging 18%.
Infrastructure investment fell 2.4% and manufacturing investment dropped 1.2% over the same period, compounding pressure on policymakers to act decisively.
Tianchen Xu, senior economist at Economist Intelligence Unit, said the disappointing results are likely to trigger a ramping up of stimulus measures in the third quarter, including a policy rate cut to stimulate investment demand.
Xu attributed the steepening investment slump to local governments channeling resources into debt restructuring and a shortage of eligible projects in the pipeline, adding: “Boosting infrastructure investment will be a key focus for stabilizing growth.”
Sarah Tan, economist at Moody’s Analytics, noted that Beijing’s campaign to rein in excess capacity and end bruising price wars will also weigh on private investment in the near term.
Li Daokui, a professor of economics at Tsinghua University and former China central bank advisor, described the intensity of the investment pullback as “unprecedented” and called for a substantial expansion in government borrowing to more than double the year’s planned 12 trillion yuan ($1.7 trillion) in new debt issuance.
The statistics bureau acknowledged an “acute” imbalance between excess supply and sluggish demand, urging policymakers to step up “counter- and cross-cyclical adjustments” to restore momentum.
Not all data pointed downward, as retail sales grew 1% in June, rebounding from a 0.6% drop in May and beating forecasts for a 0.1% decline.
Industrial output expanded 5.3% in June from a year earlier, stronger than the 4.7% forecast and an improvement over the 4.5% growth recorded in May.
David Chao, global market strategist at Invesco, said better-than-expected retail sales and industrial output would give policymakers “more wiggle room” on near-term stimulus decisions.
Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, argued that weaker headline growth is unlikely to prompt a meaningful policy shift in the coming months, with resilient exports keeping the annual target within reach.
Exports remain a notable bright spot, with China’s June export growth clocking the strongest rise since late 2021, powered by demand for chips, computers, parts, and power equipment tied to the global AI infrastructure buildout.
China’s trade surplus with the European Union widened 24% in the first half of the year, according to Larry Hu, chief China economist at Macquarie, driven by machinery and vehicle shipments.
“Despite a three-month trade truce, the growing surplus keeps the risk of a China-EU trade conflict elevated,” Hu said, signaling that export strength carries its own geopolitical costs.
On the labor front, Morgan Stanley estimates that pay cuts remained households’ top concern, with the bank lowering its income growth forecast for the next 12 months to about 5% from a prior estimate of 5.8%.
China’s urban unemployment rate held steady at 5% in June, while a separate survey conducted by Li’s team showed a broad unemployment rate of 10.2%, with more than half of roughly 24 million long-term unemployed aged between 16 and 24.
