China's economy expanded just 4.3% in the second quarter, its slowest pace in more than three years, as weak household consumption and a collapsing property sector exposed the human costs of an increasingly unbalanced growth model that's leaving millions of workers behind.
The reading missed forecasts and fell below the lower end of China's 4.5% to 5.0% full-year target. Gross domestic product growth in April-June eased from 5.0% in the first quarter, adding pressure on Beijing to deliver more stimulus. But economists said the bigger challenge wasn't the pace of growth—it's who bears the burden of stagnation.
Workers Pay the Price
Domestically, wages have been sluggish, even declining in some sectors. Industrial overcapacity, U.S. tariffs and price wars among producers have fueled layoffs in factories, while weak demand and faster AI adoption have slowed white-collar job creation. The property downturn, now in its fifth year, has eroded household wealth and curbed employment in construction since 2021.
Tens of millions of people have fallen out of formal employment into the gig economy, working for ride-hailing and delivery platforms for long hours, low pay and inadequate social security benefits. Data showed property investment contracting 18% year-on-year in January to June, while home prices also eased. The collapse in real estate has rippled through working families who've seen their primary asset lose value while job security vanishes.
Wednesday's data showed retail sales rising just 1.0% in June, underscoring how little purchasing power ordinary households have left. Industrial output expanded 5.3%, revealing an economy that can still produce goods for export but can't generate enough domestic demand to employ its own people at decent wages.
Investment Collapses
Investment is slowing across the board. China's fixed-asset investment shrank 5.7% year-on-year in January to June, with even state-sector investment dropping 2.3%. Local governments, which have been a key driver of manufacturing and infrastructure investment, are now cutting costs, including payroll. Separate data showed new bank loans rising less than expected in June.
Andy Ji, an analyst at ITC Markets, said the "primary drag" on growth was the investment downturn. "A high-tech-driven industrial engine running alongside cratering domestic consumption and investment firmly highlights the economy's deeply uneven growth momentum," Ji said.
Many analysts said a closely watched end-July meeting of the Communist Party's Politburo may not signal major steps because of concerns over ballooning debt. The economy grew 4.7% in the six months to June, which remained within target and reduced the urgency for major stimulus. Morgan Stanley cut its full-year forecast to 4.6% from 4.8%.
Export Dependence Grows
The onus is increasingly on exports to drive growth, even as trading partners complain about China's imbalances and the Iran war weighs on the world economy. Trade data on Tuesday showed external demand was so far compensating for China's internal weakness, with exports beating expectations with a 27% jump, riding the global AI boom. That partly reflected frontloading by U.S. retailers looking to secure inventories for Black Friday and Christmas sales before expected tariff hikes later this year.
Zhiwei Zhang, chief economist at Pinpoint Asset Management, said he doubted the Politburo would signal a wider fiscal deficit, given that exports for now remain strong. "The government seems reluctant to spend fiscal resources and build up debt," Zhang said. "There is a general consensus among policymakers and researchers that China needs to boost domestic demand. But there is no consensus how to do it."
A central bank official said monetary conditions were "relatively loose" at present, but pledged to support domestic demand.
U.S. President Donald Trump's visit to China in May preserved the detente between the world's two largest powers, but their relationship remains fragile. A universal 10% U.S. tariff imposed by Washington in February expires on July 24, but is widely expected to be replaced with higher levies. The U.S. Trade Representative has proposed a 12.5% tariff on imports from China and elsewhere following an investigation into forced labour, which Beijing denies, with a final decision expected in coming months.
The EU, whose trade deficit with China averaged $1 billion a day last year, plans to bolster protections of its industrial complex from Chinese competition.
Larry Hu, Macquarie Group's chief China economist, said Beijing has little incentive to lean off external demand for now. "What will cause the current situation to change is when exports fail," Hu said. "When exports slow down, in order to still achieve the growth target, the government will do more on domestic demand."
Why This Matters:
China's slowdown reveals what happens when growth prioritizes production over people. Tens of millions of workers have been pushed into precarious gig employment with inadequate protections, while wages stagnate or decline even as the country churns out manufactured goods for foreign markets. The fifth year of property decline has devastated household wealth for families who invested life savings in real estate, eroding the foundation of middle-class security. Without consensus on boosting domestic demand through stronger social safety nets or wage growth, Beijing's reluctance to spend fiscal resources leaves workers bearing the costs of structural imbalance. The export-dependent model can't sustain shared prosperity when households lack purchasing power and investment collapses. As global trade tensions rise and tariffs threaten China's external lifeline, the absence of robust domestic consumption leaves the world's second-largest economy vulnerable to shocks that will hit working families hardest.