China’s economic growth slowed sharply between early April and late June as weak domestic demand and the impact of the Iran war on oil prices overshadowed the country’s strong exports.
Official gross domestic product (GDP) data showed the world’s second-largest economy grew 4.3% in the second quarter, below Beijing’s annual target and after growing 5% in the first quarter.
It came a day after separate data showed China’s exports jumped 27% in June from a year earlier.
In March, China cut its economic growth target to a range of 4.5%-5%, its lowest economic growth target since 1991. Some analysts said the move was an opportunity for Beijing to acknowledge pre-existing economic weaknesses.
The announcement represents GDP data for the first full quarter since the war with Iran began on Feb. 28 and marks the weakest quarterly growth since late 2022 as China emerged from its strict Covid-19 restrictions.
“These are more factors of external instability and uncertainty,” China’s National Bureau of Statistics said in a statement accompanying the figures.
He also noted the imbalance between strong supply and weak demand in the domestic economy.
Separate data released Wednesday underscored the economic challenges Beijing faces at home, including a prolonged slump in the property market and weak consumer spending.
New home prices fell again, although the 0.1% fall in June was slightly slower than the previous month.
But retail sales rose 1% in June, improving from a 0.6% decline in May.
Fabien Yip, a market analyst at investment platform IG, told the BBC that Chinese businesses are absorbing higher energy and raw material costs “because demand at the counter is too weak to bear.”
According to her, the longer the war with Iran continues, the more difficult it will be to manage the situation.
However, Capital Economics head of China economics Julian Evans-Pritchard said the country’s actual economic slowdown may be less due to changing conditions and more to do with a change in the national growth target, which “has given authorities more room to recognize the reality on the ground.”
“This may largely reflect a greater willingness to acknowledge pre-existing weakness rather than a sudden deterioration in underlying growth,” he said, noting that the official figure is now closer to Capital’s own estimate of China’s growth.
“If this is the case, then the GDP figures should not be interpreted as a sign that the economy is suddenly slowing down sharply. The June data also provides some reassurance, with improvements across the board.”
Customs data for June released Tuesday showed China’s technology exports were boosted by rising global demand for semiconductors to power artificial intelligence (AI) data centers.
Rising demand for Chinese electric vehicles (EVs) has also given a strong boost to China’s exports, with monthly vehicle exports topping one million for the first time.