China's second-quarter GDP growth of 4.3 percent — its slowest in over three years — has exposed a widening gap between a red-hot export sector and a domestic economy hobbled by weak consumption, a collapsed property market, and rising youth unemployment. While exports surged 27 percent in June, fueled by AI and electric vehicle demand, experts warn that the imbalance is creating structural risks that Beijing may struggle to manage without a major policy shift. Main Developments China's GDP expanded at 4.3 percent in the April–June quarter, down from 5 percent in the first quarter and below the government's annual target range of 4.5–5 percent. The slowdown comes despite a trade surplus that swelled to $125.6 billion in June, up from $105.4 billion in May, as exports jumped 27 percent year-on-year — an acceleration from May's 19.4 percent rise. The export boom, driven by strong global demand for Chinese-made artificial intelligence hardware and electric vehicles, has not translated into broad-based domestic economic strength. Consumer spending remains tepid, and job creation is lagging, particularly for workers under 25, whose prospects for meaningful employment are eroding, according to Reza Hasmath of the University of Alberta's China Institute. Read also: Why Israel's rare full-term parliament signals a turning point Vina Nadjibulla of the Asia Pacific Foundation of Canada described a "two stories" economy: export sectors booming, but domestic consumption sluggish. She noted that China's trade surplus is already putting pressure on trading partners, with countries demanding that Beijing correct its trade imbalances. Background The roots of China's current predicament stretch back several years. A speculative real estate bubble, in which many Chinese households had tied their savings, collapsed in the early 2020s, wiping out vast amounts of household wealth. That collapse, combined with income losses during the COVID-19 pandemic, made Chinese consumers deeply conservative in their spending, according to Juliet Lu of the University of British Columbia. Beijing's social contract had long promised that hard work would lead to prosperity. Hasmath observed that the government is now shifting that narrative, with campaigns emphasizing the importance of giving back to society rather than getting wealthier. This shift reflects a recognition that the old growth model — reliant on exports and speculative real estate — is no longer delivering broad-based gains. Externally, the global environment has grown more volatile. The United States and Israel are at war with Iran, and Tehran has retaliated against energy infrastructure of US allies in the region. The Strait of Hormuz, through which roughly one-fifth of the world's oil passes, has been mostly closed, disrupting supply chains that are critical for China, a major oil importer. Why It Matters China's economic trajectory carries global implications. Its export-led model, while generating massive trade surpluses, is creating friction with trading partners who see the imbalances as unsustainable. Nadjibulla warned that countries are already pressing Beijing to address their concerns. Domestically, the failure to generate sufficient jobs — especially for the young — threatens social stability. Hasmath warned that if the current technology-export-led boom continues without a parallel domestic recovery, the economic pain will spread beyond the under-25 cohort to the broader working-age population. He cautioned that the situation will worsen if Beijing does not pivot its strategy. The closure of the Strait of Hormuz adds another layer of risk. Rachel Ziemba of the Center for a New American Security noted that China had helped stabilize global markets by drawing down its oil reserves in recent months, but now enters the third quarter with supplies again disrupted. Higher fuel prices will push up inflation and reduce demand, further weakening growth, she explained. What's Next Economists do not expect a major fiscal stimulus from Beijing in the near term. Mark Kruger, an economist affiliated with the Centre for International Governance Innovation and the Yicai Institute, said the government appears more focused on paying down debt than on spending to boost growth. He noted that average GDP growth so far this year stands at 4.7 percent, which falls within the government's 4.5–5 percent annual target range, suggesting Beijing is not panicking. The key variable to watch, according to Ziemba, is how China manages its role in global supply chains with the Strait of Hormuz largely closed. Higher energy costs could further depress domestic demand and complicate the government's growth calculations. Whether Beijing can — or will — take steps to rebalance its economy away from exports and toward domestic consumption remains an open question that will shape both China's future and global economic stability.