China's economy expanded at its slowest quarterly pace in more than three years, official data showed Wednesday, growing 4.3 percent from a year earlier in the April-through-June period as an investment slump deepened and consumer demand stayed soft. The reading, from the National Bureau of Statistics, undershot the 4.5 percent expansion economists polled by Reuters had expected and fell below Beijing's full-year target range of 4.5 percent to 5 percent, the least ambitious growth goal China has set since 1991.

The result deepens pressure on policymakers to open the fiscal taps ahead of a Communist Party leadership meeting later this month, and it lands at an awkward moment: exports are surging on artificial-intelligence chip demand while the domestic side of the economy — property, consumption and private investment — continues to weaken. First-half growth held at 4.7 percent, still within the annual target, giving Beijing room to move slowly.

What shifted

Urban fixed-asset investment fell 5.7 percent in the first six months from a year earlier, worse than the 4.9 percent decline economists had expected. Real estate investment plunged 18 percent, infrastructure fell 2.4 percent and manufacturing dropped 1.2 percent, according to the statistics bureau. New home prices contracted again, slipping 0.1 percent in June.

Tianchen Xu, senior economist at the Economist Intelligence Unit, said local governments have redirected resources into debt restructuring and that a thin pipeline of eligible projects has steepened the pullback. "Boosting infrastructure investment will be a key focus for stabilizing growth," Xu said. Li Daokui, a Tsinghua University economist and former central-bank adviser, called the decline "unprecedented" at a macroeconomics seminar this week and pressed Beijing to more than double the 12 trillion yuan, or about $1.7 trillion, in planned new debt issuance for the year.

Consumers holding back

Retail sales rose 1 percent in June, rebounding from a 0.6 percent decline in May that had marked the first monthly drop since late 2022. Vehicle sales pulled down the top line: domestic auto sales fell more than 16 percent, even as car exports topped 1 million units for the first time in a single month. Stripped of cars, retail sales rose 3 percent.

Industrial output expanded 5.3 percent in June, exceeding forecasts and picking up from 4.5 percent growth in May. Export growth hit 27 percent in June, the strongest since late 2021, powered by demand for semiconductors, computers and power equipment.

Two-speed economy

The figures underline a widening split between an industrial complex tied to the global AI buildout and a consumer economy weighed down by a prolonged property downturn. The statistics bureau called the imbalance "acute" and urged more "counter- and cross-cyclical adjustments."

Urban unemployment held at 5 percent in June, under a five-year target of less than 5.5 percent. Youth joblessness fell to 15.6 percent in May, its lowest reading in nearly a year. A separate survey by Li's team that counts long-term jobless outside the official labor force put a broader unemployment measure at 10.2 percent, with more than half of the roughly 24 million long-term unemployed aged 16 to 24.

The counterparty

The export lift has come at a diplomatic cost. China's surplus with the European Union widened 24 percent in the first half, driven by machinery and vehicle shipments, according to Larry Hu, chief China economist at Macquarie. "Despite a three-month trade truce, the growing surplus keeps the risk of a China–EU trade conflict elevated," Hu said. A separate U.S.–China trade truce is set to expire in November.

Not everyone reads Wednesday's print as a break in trend. Julian Evans-Pritchard, head of China economics at Capital Economics, said the softer figure largely reflects Beijing's willingness to acknowledge weakness after cutting its growth target in March, not a fresh deterioration. "This may largely represent a greater willingness to acknowledge pre-existing weakness rather than a sudden deterioration in underlying growth," he said, adding that June's data "offer some reassurance, with improvements across all indicators." Zhiwei Zhang, president of Pinpoint Asset Management, said the miss was unlikely to force a policy shift, citing the strong first quarter and resilient exports.

Attention now turns to the leadership meeting later this month, where Beijing typically signals its policy stance for the second half. Xu said stimulus, including a policy rate cut aimed at investment demand, will most likely arrive in the third quarter.