China’s economy experienced a significant deceleration, growing at an annualized rate of 4.3% during the April-June quarter. This marks the weakest performance in over three years. The reported figures fell short of projections and were considerably lower than the robust 5% growth observed from January to March. While a surge in exports driven by the artificial intelligence boom and strong global demand for Chinese electric vehicles propped up the economy, domestic spending and investment lagged behind.
Government data reveals a notable 17.6% rise in exports during the first half of the year compared to the previous year, with an impressive 27% increase in June alone. Yet, despite this export strength, China’s economy has struggled to regain its momentum following the COVID-19 pandemic lockdowns. Experts, including Lynn Song, chief economist for Greater China at ING Bank, note the quarter’s growth as the slowest since the fourth quarter of 2022, impacted by lockdowns.
“China’s economy is becoming increasingly unbalanced,” Song remarked, highlighting the heavy investments in AI, computer chips, and robotics against slower growth in lower-value manufacturing and service industries.
The focus on high-tech sectors, aided by substantial government support, reflects China’s prioritization of advanced technologies. High-tech products, such as electric vehicles and computer chips, have seen impressive export growth. Nonetheless, concerns over trade imbalances persist, as evidenced by China’s record $1.2 trillion global trade surplus last year. Policymakers worldwide attribute this to influential state subsidies.
A clear divide is forming in China’s economic makeup. Industrial output rose by 5.4% in the first half of 2023, yet job creation concerns loom as AI and robotics expand. Meanwhile, Chinese families have tempered spending amidst a prolonged property slump and uncertain job and wage prospects.
Eswar Prasad, professor of economics and trade policy at Cornell University, notes China’s growth model as increasingly reliant on exports, exerting pressure on domestic demand enhancement.
Mao Shengyong from the National Bureau of Statistics acknowledged the domestic economic imbalance, attributed to strong supply versus weak demand. Efforts will continue to emphasize high-tech manufacturing, aim for higher-quality growth, and bolster a stable employment environment.
Investment in fixed assets declined by 5.7% year-on-year for the first half of 2023, while retail sales of consumer goods had a modest 1.3% increase. Falling housing prices further exemplify the economic strain.
Wei Li of BNP Paribas Securities (China) emphasizes China’s economic “transition,” denoting slower growth targets of 4.5% to 5% for 2026, down from last year’s 5%. First-half 2023 growth reached 4.7%, according to released data. The International Monetary Fund adjusted its growth forecast slightly up to 4.6% for 2026 but expects reduced annual growth to 4.1% by 2027.