China’s economy grew at its slowest quarterly pace since late 2022 in the April-June period, because of mounting challenges from weak domestic demand, a prolonged property slump and slowing investment despite resilient exports driven by artificial intelligence-related products.
Official data released on Wednesday showed China’s gross domestic product (GDP) expanded 4.3% year-on-year in the second quarter, slowing from 5% in the January-March quarter and missing market expectations. The reading also fell below Beijing’s annual growth target range of 4.5% to 5%.
China is India’s second-largest trading partner and the world’s biggest consumer of several industrial commodities.
A weaker Chinese economy often reduces demand for raw materials such as steel, copper and crude oil, influencing global commodity prices. For India, lower commodity prices can ease inflationary pressures and reduce import costs, particularly for manufacturers dependent on imported inputs. However, slower Chinese demand can also affect global trade and weigh on export-oriented economies across Asia.
What’s dragging China’s economy?
The latest GDP data highlighted growing imbalances within the Chinese economy. While exports have remained strong, supported by global demand for AI-related chips, electronics, and automobiles, domestic consumption remains subdued, and the property sector continues to struggle.
June retail sales rose only modestly, while fixed-asset investment contracted in the first half of the year and property investment declined sharply, suggesting that consumer confidence and private investment remain weak.
What could it mean for India?
For India, the impact is likely to be mixed, as lower global commodity prices could help contain imported inflation and reduce input costs for sectors such as automobiles, infrastructure and manufacturing. At the same time, weaker Chinese demand could dampen global economic growth, affecting export demand for Indian companies that rely on overseas markets.
Multinational companies looking to diversify supply chains beyond China could continue expanding manufacturing investments in India, although such shifts are typically gradual rather than immediate.
The weaker-than-expected GDP reading has reinforced expectations that Chinese policymakers may roll out additional targeted support measures in the coming months.
According to a Reuters poll conducted before the data release, economists expected China’s growth to moderate this year and next, while anticipating further policy support to stabilise the economy. However, analysts expect Beijing to favour targeted fiscal measures over large-scale stimulus.
Global investors will now closely monitor Beijing’s response, particularly any measures aimed at reviving domestic consumption and supporting the property market.