China’s economy grew at its slowest pace in three years in the April-June quarter, highlighting the widening gap between the country’s booming exports and the struggles of consumers at home.
Official data released on Wednesday showed China’s economy expanded 4.3% year-on-year in the second quarter, slowing from 5% growth in the January-March quarter and missing economists’ expectations. The weaker performance comes even as Chinese exports of electric vehicles, batteries and semiconductors continue to surge, driven by global demand for artificial intelligence (AI) and clean energy products.
The latest figures suggest that while China’s factories remain among the world’s strongest, the country’s domestic economy continues to struggle under the weight of a prolonged property crisis, weak consumer spending and a soft jobs market.
One of the biggest takeaways from the latest data is that China’s export machine is still running at full speed.
Exports jumped 27% in June compared with a year earlier, helped by strong overseas demand for chips, batteries and electric vehicles. China’s trade surplus crossed $125 billion during the month, making it the second-highest on record. During the first six months of the year, exports rose more than 20%.
However, economists say those impressive numbers are masking deeper problems.
“The AI boom is global, and China is one of the countries benefiting from it,” UBS China Chief Economist Yu Song was quoted as saying in the report.
“Without this, China’s economy would be in a much worse state.”
China’s real estate downturn remains one of the biggest drags on economic growth.
The collapse in the property market has slowed construction activity, reduced household wealth and weakened consumer confidence.
According to the report, more than 14 million construction workers have lost their jobs since the property market began to unravel. Many families have also seen the value of their homes fall, making them reluctant to spend.
Instead of shopping, many Chinese consumers are choosing to save more, reflecting growing uncertainty about jobs and income.
Despite economic growth, many households are not feeling better off.
Retail sales fell in May for the first time since China emerged from Covid-19 restrictions before recovering slightly in June. Wage growth has remained weak, while employment opportunities outside manufacturing have become harder to find.
The report also notes that the recent conflict involving Iran added fresh pressure by pushing up fuel prices. Although the Chinese government controls petrol prices, fuel remains significantly more expensive than a year ago, making travel and commuting costlier for households.
On social media, consumers have increasingly begun sharing money-saving tips, including delaying purchases for several days before deciding whether they really need an item and replacing expensive imported brands with cheaper domestic alternatives.
The report highlights another trend shaping China’s economy.
While companies involved in AI, semiconductors and electric vehicles continue to benefit from strong global demand, many workers outside these sectors are being left behind.
Economists quoted in the report said the AI boom is creating a divide between people working in high-paying technology industries and those whose jobs are being displaced or affected by automation.
Dan Wang, China Director at Eurasia Group, told The New York Times that the country’s focus on high-tech manufacturing is creating structural unemployment and underemployment in other parts of the economy.
“The AI boom doesn’t benefit ordinary people in China because this priority, the industrial focus on high tech and semiconductors, actually causes structural unemployment and underemployment,” she said.
One bright spot for policymakers is that China may finally be emerging from a prolonged period of deflation.
The country’s GDP deflator, a broad measure of prices across the economy, turned positive in the second quarter after remaining negative in 13 of the previous 14 quarters. Economists said higher fuel prices contributed to the improvement, although they also increased pressure on household budgets.
China’s leadership has already acknowledged the economic challenges.
Premier Li Qiang recently said the government would focus on creating new drivers of consumption and stabilising employment. Beijing has also announced plans to increase retail sales and raise household consumption as a share of the economy, although economists believe stronger stimulus measures may still be needed.
For now, China’s economy appears to be moving in two different directions.
On one hand, the country continues to dominate global manufacturing, particularly in AI-related industries, batteries and electric vehicles. On the other, millions of households remain cautious about spending because of falling property values, weak income growth and uncertainty over jobs.
The latest growth figures show that exports and AI are helping China avoid a sharper slowdown, but they have not yet been enough to revive confidence among ordinary consumers.