China's Two-Speed Economy: Weak Domestic Consumption Amid Strong Exports and Services
China’s economy grew at a slower-than-expected rate of 4.3% in the second quarter of 2026, driven by strong exports and industrial output but hampered by weak domestic consumption. Retail sales rose only slightly to 1.0%, while exports surged 27%. The country is experiencing divergent economic performance: a resilient export-oriented manufacturing sector versus a struggling domestic market marked by low consumer spending and property sector woes. The shift in Chinese consumer behavior since the pandemic has been significant, with consumption growth slowing compared to GDP expansion. A key factor behind this trend is declining home values, which have eroded household wealth for many residents who rely heavily on real estate as a store of value. Despite government efforts such as its first standalone five-year plan focused on boosting consumption by 2030, the targets remain modest and will require sustained growth to meet. Within domestic consumption itself, there is also divergence: while services are outperforming overall GDP growth, goods consumption—particularly in sectors like automobiles—is lagging. Car sales have dropped significantly due to fading subsidies for electric vehicles and intense competition among automakers that has suppressed margins.
Topics: China consumer spending economy exports growth