YANTAI, CHINA – JULY 14, 2026 – Containers parked at the Yantai Port International Container Terminal in Yantai City, Shandong Province, China on July 14, 2026.
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China’s economy in the second quarter grew at its slowest pace since the fourth quarter of 2022, bolstering calls for policy stimulus. as the rapid slide in investment deepened the strain on growth, while consumption remained subdued.
Gross domestic product growth reached 4.3% in the April to June period, data from the National Statistics Bureau showed on Wednesday, missing economists’ forecast of 4.5% growth in a Reuters poll, and down from 5% in the first quarter.
That second-quarter growth was below Beijing’s full-year growth target range of 4.5% to 5%, the least ambitious target in decades, amid tensions with trading partners, including the US and the European Union, and weak domestic demand.
Given the disappointing growth, Tianchen Xu, senior economist at the Economist Intelligence Unit, expects stimulus measures to be tightened in the third quarter, including policy rate cuts to stimulate investment demand.
Investment in urban fixed assets, which includes housing development and infrastructure projects, fell 5.7% in the first six months from a year earlier, worse than the 4.9% decline expected in a Reuters poll.
Xu pointed out that the decline in investment is caused by local governments putting resources into debt restructuring and a lack of suitable projects. “Improving infrastructure investment will be a key focus for sustaining growth.”
Beijing’s drive to tighten excess capacity and end damaging price wars will also weigh on private investment in the near term, said Sarah Tan, an economist at Moody’s Analytics.
Investments in buildings, infrastructure and manufacturing fell by 18%, 2.4% and 1.2% respectively, according to official data.
In June, China’s retail sales grew 1%, rebounding from a 0.6% decline in the previous month and beating economists’ forecast of a 0.1% drop. Retail sales in May posted their first monthly decline since late 2022, dragged down by strong demand and steep discounting by retailers.
Industrial output grew 5.3% in June from a year earlier, stronger than the 4.7% growth forecast, and picking up pace from May’s 4.5% growth.
China’s economy has faced a deepening supply-demand imbalance. Strong industrial production and exports related to growing global AI investment continue to grow strongly, as consumption and private investment weaken amid a prolonged commodity slump and volatile energy prices.
The statistics office noted the “severe” imbalance between oversupply and sluggish demand, urging policymakers to strengthen “counter-cyclical and counter-cyclical adjustments.”
Investment in cities fell for the first time in decades, down 3.8% from a year earlier, and up from a 4.1% decline in the first five months, as a prolonged slump in assets and tight constraints on local government borrowing hampered one of China’s traditional growth campaigns.
The strength of the pullback in investment is “unprecedented,” said Li Daokui, an economics professor at Tsinghua University, and an adviser to China’s central bank. Speaking at a macroeconomics conference earlier this week, Li called for a major increase in government borrowing to more than double this year’s planned 12 trillion yuan ($1.7 trillion) in new debt issuance.
— CNBC’s Evelyn Cheng contributed to this report.
