China growth slows as investment slump pressures Beijing

China’s economy lost momentum in the second quarter, a signal that one of the world’s biggest growth engines is still struggling to find balance. For everyday investors, the read-through is broad: weaker Chinese demand can affect global companies tied to commodities, luxury goods, autos, chips and industrial supply chains.

Gross domestic product, the broad measure of goods and services produced in an economy, rose 4.3% in the April-to-June quarter, according to data from China’s National Bureau of Statistics reported Wednesday. That was below the 4.5% growth economists expected in a Reuters poll and slower than the 5% pace recorded in the first quarter.

CNBC reported that the quarterly expansion was China’s weakest since the fourth quarter of 2022. It also came in below Beijing’s full-year growth target range of 4.5% to 5%, a goal CNBC described as the least ambitious in decades.

Investment is the weak spot

The biggest pressure point was investment. Urban fixed-asset investment, which includes spending on real estate development and infrastructure projects, fell 5.7% in the first six months from a year earlier, according to the statistics bureau data cited by CNBC.

That drop was deeper than the 4.9% decline economists expected in a Reuters poll and worse than the 4.1% contraction recorded for the first five months of the year.

Fixed-asset investment matters because it has long been one of China’s main ways to drive growth. When local governments build roads, rail, housing or other projects, that spending supports construction firms, materials producers and jobs. A decline suggests that this engine is providing less support to the wider economy.

Tianchen Xu, senior economist at the Economist Intelligence Unit, told CNBC he expects stimulus measures to increase in the third quarter after the disappointing growth number. He said those measures could include a policy rate cut, which would lower borrowing costs in an effort to encourage more investment.

Xu linked the steeper investment decline to local governments directing resources toward debt restructuring and a lack of eligible projects ready to launch. He said boosting infrastructure investment would be a key focus for stabilizing growth, according to CNBC.

Consumers and factories showed some strength in June

The June data were not uniformly weak. Retail sales rose 1% from the prior month, the statistics bureau data showed, rebounding from a 0.6% decline in May. Economists polled by Reuters had expected a 0.1% drop.

Retail sales track spending at shops, restaurants and online platforms, so they are a useful gauge of consumer demand. CNBC reported that May’s decline was the first monthly drop since late 2022, with demand soft and merchants relying on heavy discounts.

Industrial output also improved. Factory production rose 5.3% in June from a year earlier, ahead of the 4.7% growth expected in a Reuters poll and faster than the 4.5% increase in May.

That split shows the tension in China’s economy. CNBC reported that strong industrial production and exports tied to global artificial intelligence investment have continued to support headline growth. Domestic consumption and private investment remain weaker, weighed down by a long property downturn and volatile energy prices.

The National Bureau of Statistics pointed to an “acute” imbalance between excess supply and weak demand, according to CNBC. The bureau called for stronger counter-cyclical and cross-cyclical adjustments, terms that refer to policy steps meant to support the economy during downturns and smooth out longer economic swings.

China’s urban unemployment rate stood at 5% in June, according to the data cited by CNBC. The country’s leadership is aiming for unemployment below 5.5% over the next five-year period.

This story draws on original reporting from CNBC Markets.