China’s economy grew by 4.3% in the second quarter, missing official targets and marking one of the lowest growth rates since reporting on official quarterly GDP figures began in the early 1990s. The only period when growth was lower was the final quarter of 2022, when the country was still under its three-year period of Covid-19 restrictions. The slowdown, coupled with a record 12.7 million university graduates entering an increasingly saturated job market, highlights deepening structural challenges within the world’s second-largest economy.
National Bureau of Statistics of China reports 4.3% quarterly GDP growth
Growth Misses Targets as Domestic Demand Stalls
Official data released by the National Bureau of Statistics of China on Wednesday confirmed that the economy expanded by 4.3% in the three months to June. This figure fell short of the government’s target range of 4.5% to 5%. While the first half of the year saw an overall growth rate of 4.7%, which was within Beijing’s target range, the recent quarterly dip underscores a reliance on exports that masks domestic weakness.
Julian Evans-Pritchard, head of China economics at Capital Economics, said the actual slowdown may have less to do with changing conditions and more to do with a change in the national growth target, which had given the authorities more room to acknowledge the reality on the ground.
The contrasting figures highlight the extent to which China’s economy has become dependent on selling its goods abroad while the country struggles to drum up consumer demand at home. Official customs figures for June showed soaring exports, with outbound shipments increasing by 27%. Monthly car exports topped 1 million for the first time in June, but domestic vehicle sales plummeted by more than 16%. Although retail sales, excluding cars, increased by 3% last month, economists say more sustained growth in consumption is necessary. Exports currently account for about 20% of gross domestic product.
Li Daokui identifies local government fixed-asset investment as an economic bottleneck
Fixed-Asset Investment and the Role of Local Government
Li Daokui, a leading Chinese economist and professor of economics at Tsinghua University in Beijing, warned that local governments—historically the primary engines of economic expansion—have become bottlenecks. In a speech on Saturday, Li, who serves as an adviser to Beijing’s senior leadership, noted that fixed-asset investment, including spending on bridges, roads, and infrastructure historically managed by provincial authorities, declined by more than 4% between January and May.
“The intensity and magnitude of this cumulative negative growth are unprecedented,” Li said, according to Chinese media reports. “If [these issues] are not addressed, all of China’s economic goals and tasks will face difficulties.”
Similar contractions in fixed-asset investment have happened only twice since the founding of the People’s Republic of China—in 1961 and 1967. Li emphasized that the decline in investment, alongside unemployment, must be given our utmost attention.
12.7 million university graduates encounter labor market skill mismatches
Record Graduate Numbers and Labor Market Mismatches
The economic cooling is felt acutely by this year’s cohort of graduates. A record 12.7 million students are entering the workforce, a 480,000 increase on 2025. For many, this period is increasingly representing trepidation about the future. Jasmine, a 22-year-old who studied accounting in Shanghai, is among this cohort and has sent out about 150 CVs over the past month without success. “It has been much harder than I imagined,” she said. “The lack of vacancies is one issue, and the competition is also intense, especially for jobs that offer weekends off and proper social insurance.”
The jobless rate among 16- to 24-year-olds is 15.6% in China, comparable to 16.2% in the UK and 15.1% in the EU. According to an Economist Intelligence Unit (EIU) researcher, youth employment has been a persistent issue since 2020 that has “not meaningfully improved.” The researcher noted that a mismatch emerged between the skills supplied by graduates and those demanded by the labor market as the economy shifted toward high-value industries like electric vehicles, batteries, semiconductors, and robotics. This problem has been exacerbated by AI’s “transformative impact,” as entry-level jobs are often easier to automate. “Even graduates with backgrounds in IT services have seen some entry-level tasks increasingly automated by AI,” the researcher noted.
The speed of this transition is unique to China, according to Charles Jeffery Sun, founder of the consultancy China Education International. “China’s higher education is centrally governed. When Beijing sets a strategic direction, implementation across hundreds of universities happens rapidly,” he said.
Chinese Communist Party assesses global GDP share shifts and trade war risks
Long-term Economic Trajectory and Global Standing
Analysts are assessing China’s long-term global position as growth appears to have peaked in 2021. Since then, China’s share of global GDP has fallen in nominal terms, while the US share has risen.
External pressures remain a concern. The US-China trade war is in a detente phase, but Beijing is nervous that a resumption of tariffs when the truce expires in November could hurt exporters. Additionally, the US-Israel war on Iran risks reducing global demand for Chinese goods. While China has weathered the immediate economic shock of the conflict due to large energy stockpiles, a global recession would cause long-term pain. Analysts are now watching to see whether the Chinese Communist party will make any indication of new stimulus measures during a gathering of its top officials later this month.
Find more reporting in our World section.
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