China's Economic Growth Slows in Second Quarter
China's economic growth experienced a notable slowdown from April to June, influenced by subdued domestic demand and the ongoing impact of the Iran conflict on oil prices. Official data reveals that the world's second-largest economy expanded by 4.3% during this period, falling below Beijing's annual target. This follows a 5% growth rate in the first quarter.
The latest figures come amid reports of a significant 27% year-on-year increase in China's exports in June. In March, the Chinese government revised its growth target to a range of 4.5%-5%, marking the lowest economic expansion goal since 1991. Analysts suggest this adjustment has allowed Beijing to address underlying economic vulnerabilities.
Impact of External and Domestic Factors
The recent GDP data represents the first full quarter since the onset of the Iran conflict on February 28, highlighting the lowest quarterly growth since late 2022, when China began easing its stringent COVID-19 restrictions. According to the National Bureau of Statistics, external instability and uncertainty continue to pose challenges, alongside a domestic imbalance characterized by strong supply and weak demand.
Additional data released on Wednesday underscores the economic hurdles China faces domestically, including persistent issues in the property market and diminished consumer spending. Although new home prices fell again, the decline slowed to 0.1% in June. Retail sales showed a positive trend, rising by 1% in June after a 0.6% decline in May.
"China's businesses are struggling with higher energy and raw material costs because consumer demand is too weak to absorb these increases," said Fabien Yip, a market analyst at IG. "The situation will become more challenging if the Iran conflict continues," she added.
Analysts' Perspectives on Economic Slowdown
Julian Evans-Pritchard, head of China economics at Capital Economics, suggests that the apparent slowdown may not solely reflect changing conditions but rather a shift in the national growth target. This shift may have allowed authorities to acknowledge existing weaknesses more openly.
"This may largely represent a greater willingness to acknowledge pre-existing weakness rather than a sudden deterioration in underlying growth," Evans-Pritchard noted. "If that’s the case, then the GDP figures should not be interpreted as a sign that the economy is suddenly slowing sharply. The June data also offer some reassurance, with improvements across all indicators."
Export Growth Driven by Technology and Electric Vehicles
Customs data from June highlights that China's technology exports experienced significant growth, driven by global demand for semiconductors used in artificial intelligence (AI) data centres. Additionally, the surge in demand for Chinese electric vehicles (EVs) contributed to a notable increase in exports, with monthly car exports surpassing one million for the first time.
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