China’s economic growth slowed sharply between the start of April and end of June as weak domestic demand and the Iran war’s impact on oil prices overshadowed the country’s strong exports.
Official gross domestic product (GDP) figures showed the world’s second largest economy grew in the second quarter by 4.3%, below Beijing’s annual target, and after a 5% rise in the first quarter.
It comes a day after separate data showed China’s exports had jumped by 27% in June compared to a year earlier.
In March, China cut the growth target to a range of 4.5%-5%, its lowest economic expansion goal since 1991, a move some analysts say has given Beijing space to acknowledge pre-existing economic weakness.
The announcement represents the first full quarter of GDP data since the start of the Iran war on 28 February and marks the lowest quarterly expansion since the end of 2022, as China was emerging from its strict Covid-19 restrictions.
“There are more external instability and uncertainty factors,” China’s National Bureau of Statistics said in a release accompanying the figures.
It also noted an imbalance between strong supply and weak demand in the domestic economy.
Separate data released on Wednesday highlighted the economic challenges Beijing is facing at home – including a long-running property market slump and weak consumer spending.
New home prices contracted again, although the 0.1% fall in June was at a slightly slower pace than the previous month.
But retail sales rose by 1% in June, improving from a 0.6% decrease in May.
Fabien Yip, a market analyst at investment platform IG told the BBC that China’s businesses are absorbing higher energy and raw materials costs “because demand at the till is too weak to bear it”.
The situation will become more difficult to manage the longer the Iran war goes on, she added.
However Capital Economics’s head of China economics Julian Evans-Pritchard said the actual slowdown in the country’s economy may have less to do with changing conditions, and more to do with a change in the national growth target which had “given the authorities more room to acknowledge the reality on the ground”.
“This may largely represent 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 in line with Capital’s own estimate of Chinese growth.
“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.”
Customs data for June, which was released on Tuesday, showed that China’s tech exports were boosted by soaring global demand for semiconductors to power artificial intelligence (AI) data centres.
Surging demand for Chinese electric vehicles (EVs) also gave a major boost to China’s exports – with monthly car exports topping one million for the first time.
