China's economy likely cooled in second quarter: analysts

BEIJING

China's economic growth likely slowed in the second quarter of the year, according to an AFP survey, though strong exports linked to a global AI boom helped offset trade disruptions and high energy prices caused by the Middle East war.

The world's second-largest economy is increasingly reliant on foreign trade to expand as a prolonged property-sector slump and weak consumer demand continue to pose problems.

The U.S.-Israeli war on Iran threatened growth and sparked fears of a downturn that would have hit demand for Chinese exports.

Data on July 15 is expected to show the country's economy expanded 4.5 percent year-on-year in April-July, according to the median forecast of an AFP survey of experts.

That would represent a significant slowdown from the 5 percent recorded in the previous quarter but still leave the economy on track to reach the government's annual target of 4.5-5 percent.

Dan Wang, a director on Eurasia Group's China team, said the economy had stood up well to energy and supply chain disruptions from the Iran war.
But he added that "weaker global demand has a visible negative impact on lower-end consumer goods and small exporters."

High-tech sectors thrived, however, with industries related to artificial intelligence and renewable energy seeing "stellar performance," Wang said.

China weathered a punishing trade war launched by U.S. President Donald Trump last year to emerge with an eye-watering $1.2 trillion trade surplus in 2025, the largest on record.

Exports have surged again in the first half of this year, driven by demand for AI-related tech and automobiles, with overseas shipments up 19.4 percent on-year in May.

In the second quarter, "external demand continued to outperform despite tariffs and geopolitical uncertainty," Sheana Yue, senior economist at Oxford Economics, told AFP.

She said this reflected "China's improving competitiveness, continued gains in global market share, and its ability to rapidly scale production in higher value-added manufacturing sectors."

But surging exports are compensating for weak domestic demand and subdued business and household sentiment that "appears to have been further weighed down by uncertainty stemming from the Iran conflict," Yue said.

The debt crisis in China's massive property sector, which began in 2020 and has spooked consumers, has also dragged on.

Once a key store of wealth, home prices across the country have stagnated, dissuading would-be buyers from investing.

"With still no signals that the real estate crisis is coming to an end, it is hard to see a recovery in consumption," said Rabobank's Teeuwe Mevissen.

Analysts expect new measures will be needed to support growth in the second half of the year, especially if the AI export wave subsides.