BEIJING — China’s economy lost significant momentum in the second quarter of 2026, growing at its slowest annual pace in more than three years and falling short of both analyst expectations and the government’s own targets.
Official data released Wednesday showed gross domestic product in the world’s second-largest economy climbed 4.3% compared to the same period last year. That came in below the 4.5% growth analysts had predicted and represented a notable step down from the 5.0% expansion recorded in the first quarter.
The last time China posted weaker annual growth was in the fourth quarter of 2022, when strict COVID-era lockdown policies were suppressing economic activity. The latest figure also dipped below the bottom end of Beijing’s full-year growth target range of 4.5% to 5%, putting added pressure on policymakers to find ways to reinvigorate the economy.
On a quarter-over-quarter basis, the economy grew 0.9% — in line with forecasts but slower than the 1.3% gain recorded in the prior quarter. For the first six months of the year combined, GDP growth came in at 4.7%.
The underlying story of China’s economy is one of growing imbalance: industrial production remains strong, buoyed in part by AI-related exports, while consumer spending and investment continue to struggle under the strain of a prolonged housing market downturn and the ripple effects of a global oil price shock.
Hao Zhou, a Hong Kong-based analyst at Guotai Haitong Securities, said the focus has now shifted to how China’s leadership plans to hit its annual growth goal. “The policy debate now shifts toward how Beijing intends to secure its annual growth target. We expect policymakers to maintain a strong focus on supporting domestic demand, particularly consumption and infrastructure investment,” he said.
Zhou did not anticipate sweeping economic stimulus, however. “As long as external demand continues to provide a meaningful cushion to growth, authorities are likely to prefer targeted and incremental policy support rather than deploying large-scale stimulus measures,” he added.
Market watchers are now looking ahead to an anticipated late-July Politburo meeting, where new policy signals could shape economic strategy for the remainder of the year.
Activity data for June showed a mixed picture. Industrial output climbed 5.3% year-over-year, picking up from 4.5% growth in May and hitting its fastest pace in three months. Retail sales rebounded 1.0% in June after falling 0.6% in May — the best performance in three months and well above the 0.1% decline analysts had expected. Sales of communication devices, cultural and office products, tobacco, alcohol, and cosmetics all contributed to the rebound.
Over the first half of the year, services sales grew 5.3%, far outpacing the 1.1% increase in goods sales.
Investment, however, remained a weak point. Fixed-asset investment contracted 5.7% in the first six months of 2026, worse than the expected 4.9% decline and steeper than the 4.1% drop recorded through May. Private investment fell 8.5%, and even state-sector investment declined 2.3%. Infrastructure spending shrank 2.4% as government fiscal outlays lagged behind.
Andi Ji, an analyst at ITC Markets, described the situation bluntly: “A high-tech-driven industrial engine running alongside cratering domestic consumption and investment firmly highlights the economy’s deeply uneven growth momentum.”
China’s property sector continued to weigh heavily on the overall economy. Real estate investment dropped 18% in the first half of the year compared with the same period in 2025, widening from a 16.2% decline through May. New home prices fell again in June, though the pace of decline eased slightly, as weak nationwide demand overshadowed modest improvements in some major cities.
On Monday, Premier Li Qiang called for “a comprehensive and objective understanding” of current economic conditions and urged stronger counter-cyclical policy action, according to state broadcaster CCTV.
Also on Monday, China unveiled its first five-year plan centered on boosting consumption, setting a target of approximately 60 trillion yuan in annual retail sales by 2030.
Analysts widely expect Beijing to turn increasingly to fiscal tools to buffer any further economic softening, as the central bank faces limitations in deploying aggressive monetary easing even amid declining oil prices.
Minxiong Liao, senior economist at GlobalData.TS Lombard APAC, welcomed the policy direction but cautioned that more will be needed. “The recent policy focus on boosting consumption suggests Beijing is increasingly aware of this imbalance, but meaningful rebalancing will require more than trade-in subsidies and consumer incentives,” Liao said. “Unless stronger fiscal support reaches households through higher social transfers and a more robust healthcare and pension system, precautionary saving is likely to remain elevated and any improvement in consumption will probably prove gradual rather than self-sustaining.”
