China's economy grows at slowest pace since 2022, missing target

China’s economy expanded 4.3% in the second quarter, the weakest pace since the fourth quarter of 2022 and below a 4.5% economist forecast, as investment and domestic demand weakened. First-half gross domestic product rose 4.7% from a year earlier to 69.57 trillion yuan, but that still leaves Beijing short of its 4.5% to 5% full-year target.

The slowdown was broad. Urban fixed-asset investment fell 5.7% in the first half of the year, with real-estate investment down 18%, infrastructure investment off 2.4% and manufacturing investment down 1.2%. Retail sales rose only 1.3% in the first half, and June sales gained just 1% after a 0.6% drop in May. Industrial output still rose 5.3% in June, but the labor market remained soft, with the surveyed urban unemployment rate averaging 5.2% in the first half.

The effects for the rest of the world will show up first in commodities, shipping and exporters. A weaker Chinese construction cycle translates into less demand for iron ore, copper, energy and heavy machinery, while slower retail and housing activity trim orders for consumer goods, luxury products and industrial equipment. U.S. exporters, from farm suppliers to manufacturers that sell into China, face a thinner market. American consumers see some of that weakness in lower import prices, but companies tied to Chinese demand feel the squeeze in margins and order books.

The investment slump points to local-government debt restructuring and too few eligible projects, limiting the effectiveness of the usual infrastructure-heavy response. Moody’s Analytics and the Economist Intelligence Unit see weak demand and policy restraint keeping pressure on Beijing to use more stimulus, including a policy-rate cut in the third quarter. That helps support growth in the near term, but it also adds to debt and deflation pressures that are already constraining the recovery.

The National Bureau of Statistics said the economy was operating within an appropriate range and that high-tech manufacturing was developing rapidly.