China’s economic divide is widening in era of protectionism

July 16, 2026 — 10:00am

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The fault lines within China’s seemingly on-track economy are swelling.

While the 5 per cent growth reported this week for the first half of this year was well within Beijing’s target range of 4.5 to 5 per cent, the 4.3 per cent growth rate in the June quarter was the country’s weakest since the pandemic.

Since the pandemic and the meltdown in its property market that overlapped it, China’s economic story has had two very different threads to it. Exports have boomed while the domestic economy has shrunk. It would appear that this year that divergence is increasing.

China’s exports in June totalled about $288 billion, a record and 27 per cent greater than a year earlier.

Despite a 36 per cent surge in imports – fuelled by the global demand for the electronic inputs to artificial intelligence – China is on track for another $US1 trillion-plus ($1.4 trillion-plus) trade surplus this year.

The weakness in the June quarter – the worst since the fourth quarter of 2022, when China was still experiencing Draconian COVID lockdowns – was driven by a continuing fall in fixed asset investment, an 8.5 per cent decline in private sector investment, flat-lining retail sales (including a 16 per cent slump in auto sales) and further falls in property investment and housing prices.

With China’s growth faltering again, the pressure on Beijing to do something substantial to increase domestic consumption will only intensify.

China might also have been affected by the flow-on effects of the war in the Middle East.

The closure of the Strait of Hormuz and the resulting spike in oil prices posed a threat to the energy security and economy of China, the world’s biggest oil importer and Iran’s major customer.

President Xi Jinping has, however, made........

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