A 3-Year Low: Why China's Economy Is Losing Momentum Despite The AI Boom
China Economy (Image Source: AP)China’s economy lost momentum in the second quarter of 2026, expanding at its slowest annual pace in more than three years and falling short of official expectations. The. . .
China Economy (Image Source: AP)China’s economy lost momentum in the second quarter of 2026, expanding at its slowest annual pace in more than three years and falling short of official expectations. The weaker-than-anticipated performance is likely to put major pressure on Beijing to accelerate fiscal spending and unveil fresh measures to keep economic growth on track for the year. According to data released by the National Bureau of Statistics (NBS), China’s gross domestic product (GDP) grew 4. 3 per cent year-on-year in the April-June quarter, below the government's target range of 4. 5 per cent to 5 per cent. Economists surveyed by Bloomberg had expected growth of 4 per cent, while the economy had expanded 5 per cent in the first quarter. On a quarterly basis,GDP increased0. 9 per cent, marking the weakest quarter-on-quarter growth in more than two years. During the first six months of 2026, the economy expanded 4. 7 per cent, leaving policymakers with the challenge of sustaining momentum through the remainder of the year, as per the report. Pressure Mounts On Beijing To Boost Fiscal SupportThe disappointing growth numbers are expected to dominate discussions at the Communist Party’s Politburo meeting later this month. Analysts believe the government could accelerate infrastructure spending and implement existing fiscal measures more aggressively after recent cuts in expenditure weighed on economic activity, states the report. “There is room to speed up fiscal spending under the approved budget to support infrastructure investment,” said Ding Shuang, chief economist for Greater China and North Asia for Standard Chartered Plc, who was one of two forecasters in the survey to predict the annual GDP figure correctly, according to the Bloomberg report. “We think the government will prioritise implementation of existing policies. ”Premier Li Qiang has also indicated that authorities are keeping additional policy options on the table. Speaking earlier this week, he called for “preparing and studying additional policies,” signalling that further economic support could be introduced if needed. Mixed Economic Indicators Paint Uneven RecoveryThe latest economic data presented a mixed picture. Fixed-asset investment declined 5. 7 per cent during the first half of the year compared with the same period last year, a sharper contraction than economists had forecast and worse than the 4. 1 per cent decline recorded in the January-May period. Retail spending, however, offered a positive surprise. Retail sales rose 1per cent in June after falling 0. 6 per cent in May, defying expectations of another decline. Industrial production also exceeded forecasts, increasing 5. 3 per cent, while the surveyed urban unemployment rate eased slightly to 5 per cent from 5. 1 per cent a month earlier. Commenting on the figures, Mao Shengyong, deputy head of the National Bureau of Statistics, said temporary factors had weighed on second-quarter performance. “The slowdown in second-quarter growth is mainly due to short-term and external factors,” said Mao Shengyong, deputy head of NBS. While “temporary factors” affected some sectors like coal mining, he said, “other industries were normal, and the economy’s fundamentals, which are stable and upgrading in structure, are unchanged. ”Financial markets showed little reaction following the release of the data, with the offshore yuan posting modest gains while yields on China's 10-year government bonds remained largely unchanged. Property Slump, Weak Demand And AI Reshape China's EconomyDespite strong exports and resilient manufacturing supported by the global expansion of artificial intelligence infrastructure, domestic demand remains a key concern. Consumer spending and business confidence continue to be restrained by the prolonged downturn in the property market. Retail sales excluding automobiles increased 3 per cent in June, while vehicle purchases plunged by more than 16 per cent. Although the annual "618" online shopping festival helped reduce declines in home appliance sales, economists believe household spending remains subdued. The GDP deflator turned positive for the first time since early 2023, largely because of higher import costs, particularly energy prices. However, analysts note that underlying deflationary pressures continue to persist due to excess industrial capacity. “China’s economy is starting to ease off the accelerator,” said Moody’s Analytics economist Sarah Tan, according to the report. “Domestic demand remains the economy’s weakest link. The prolonged property downturn continues to weigh on household wealth and confidence, leaving consumers reluctant to spend and businesses hesitant to invest. ”Fixed-asset investment has emerged as another major concern. Property investment fell 18 per cent in the first half of 2026 compared with a year earlier, marking the steepest decline since comparable records began in 1992. Economists argue that the sharp contraction underscores the need for stronger policy support. "The disappointing performance highlights an urgent need for a change in policy tempo in the second half of the year. At a minimum, policymakers are likely to fast-track the delivery of the fiscal stimulus pledged in March. The case is also strengthening for more monetary easing. "Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group Ltd. , also stressed the need for further action, as per the report. "The investment contraction "is the culprit of the poor GDP in the second quarter,"" said Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group Ltd. “China will still need to deliver growth-supportive policy in the second half, best before the end of the third quarter. July’s Politburo is now our closely watched event. ”Meanwhile, economists continue to warn about structural challenges, including slowing investment, persistent weakness in domestic demand and employment concerns, particularly as artificial intelligence reshapes the labour market. Li, the government adviser, also cautioned that the employment and investment issues “must be paid serious attention,” adding, “If we don’t address them, we’ll have trouble achieving various goals with the economy. ”Priya RaghuvanshiauthorShe is working as a Chief Copy Editor at Times Now’s Business Desk, where she covers key developments in the stock market, Indian corporates across se. . . View MoreNewsBusinessEconomyEnd of Article