China's economy cooled sharply in the second quarter of 2026. GDP growth slowed to 4.3 percent from 5.0 percent in the first quarter, leaving first-half growth at 4.7 percent and putting the annual target of 4.5 to 5.0 percent under pressure.
The domestic weakness was broad. Fixed-asset investment declined by 5.7 percent in the first half, real estate investment fell by 18.0 percent, and local governments appeared increasingly constrained in their ability to sustain infrastructure spending.
Households also remained cautious. Domestic car sales fell 16.1 percent year on year in June, while retail sales growth reached only 1.0 percent. Excluding cars, consumption was firmer at 3.0 percent but still not strong enough to rebalance the economy.
Foreign demand did much of the work. Exports rose 27.0 percent in June and imports 36.0 percent on a dollar basis, with automotive exports surging 70 percent and high-tech products performing strongly. Net exports accounted for 20.9 percent of GDP growth in the quarter.
The policy dilemma is that more fiscal support may be needed to protect the growth target, but the fastest available support remains export-led. That means domestic imbalances are likely to persist and trade tensions with foreign industrial partners are likely to remain elevated.
