DONGGUAN, China—At a factory so big it could fit dozens of football fields, Chinese furniture manufacturer DeRucci churns out up to 5,000 mattresses a day.
Whirring robotic arms and machines do most of the work, reducing the need for workers by nearly half, according to Arthur Chen, DeRucci’s supply-chain general manager.
DeRucci is racing to sell its mattresses abroad. Overseas sales grew 67% in 2025 compared with the previous year. The company is hoping its new high-tech mattresses—which it says use artificial intelligence to adapt to users and can cost more than $9,000—will attract fresh customers.
But domestic sales, the bulk of DeRucci’s business, are shrinking amid a yearslong real-estate downturn in China. People aren’t buying as many homes, so there is less demand for furniture. DeRucci’s revenue from China fell 8.8% last year and it expects overall profits to fall roughly 40% in the first half of 2026 from the same period a year prior.
This is the split-screen reality of China’s economy. On the one hand: soaring exports, advanced manufacturing and cutting-edge technology. On the other: a shrinking labor market, tepid consumer spending and a real-estate slump with no end in sight.
“China’s economy remains highly imbalanced,” said Frederic Neumann, HSBC’s chief Asia economist. “In recent months this divergence has become even more pronounced.”
China’s gross domestic product expanded 4.3% in the second quarter compared with the same period last year, according to official data released Wednesday. That marked the slowest growth since the end of 2022, when the country was contending with the economic fallout of the Covid-19 pandemic.
The weak GDP figure reflects the vulnerability of China’s two-speed economic model, which increasingly relies on exports to drive growth. Though exports surged 27% in June, it couldn’t make up for a 5.7% decline in fixed-asset investment in the first half of the year and stagnant retail sales growth.
Looming over the economy is a real-estate slump that has erased household wealth and weighed on consumer and business sentiment. Property investment alone declined 18% in the first half of the year compared with the same period in 2025.
Weak domestic demand means that many of China’s manufacturers have to look outside the country for growth. China’s monthly car exports, for example, surged past 1 million in June for the first time, while domestic car sales sank 23%, falling for a ninth straight month.
In Shenzhen, a tech hub bordering Hong Kong, robotics company Elephant Robotics is busy fulfilling international orders, with roughly 70% of its sales coming from overseas. It sells industrial robotic arms, most used to help teach classes such as automation at universities such as Harvard and Stanford, according to the company.
“The industry of robotic arms is really intense, so at first we struggled. But then we found this empty place in education and we made it really big,” said Sue Peng, a manager at Elephant Robotics.
China’s overall surging exports have exacerbated tensions with trading partners, including the European Union.
Economists have long called on Beijing to implement deep reforms to rebalance China’s economy and reduce reliance on manufacturing. Though China recently released its first five-year plan targeting consumption, some economists say Beijing’s policies don’t go far enough.
They aren’t taking steps to boost consumption because “that’s not the model they want,” said Alicia García-Herrero, chief economist for Asia Pacific at Natixis. Beijing wants “to move up the ladder fast and dominate technologies. For that, the fact that people consume and go to the cinema doesn’t really help.”
Tepid domestic spending means that many Chinese companies have lowered prices, squeezing profits and forcing them into cost-cutting mode. Some of China’s largest companies, including tech firms Alibaba and Baidu, have reduced head counts in the past year.
Though China’s official urban unemployment rate has remained steady at around 5%, some economists believe the actual labor-market picture is bleaker.
Li Daokui, a Chinese economist and professor at Tsinghua University, recently estimated that China’s broad unemployment rate is actually 10.2%, when factoring in people excluded from official statistics who have been unable to find work for at least two years.
Long-term unemployed people total 24 million, including 13 million who are 16-to-24-years-old, which hurts social stability, he said in an online seminar Saturday.
Some have turned to gig economy jobs, such as food delivery and ride hailing, to earn cash. The number of people in China with flexible employment—work without a permanent contract—is expected to grow to 320 million in 2026, accounting for more than 40% of urban employment, according to think tank China New Employment Forms Research Center.
Xu Xiaoxue, 33, has been out of work for four years. She quit her data analysis job in Shenzhen to try her hand at entrepreneurship, but after failing to raise startup funding, she has been applying for roles with no luck.
Before the pandemic, Xu remembers being spammed in recruitment group chats with new job postings every spring and fall. Now, openings are harder to come by.
“Companies were expanding a lot back then and would just say, ‘Why don’t you join us?’ and you’d get hired. But now, basically everyone is downsizing,” Xu said.
Xu has spent most of the past four years in her hometown in Anhui province but is planning to move back to Shenzhen soon to continue job hunting. She is now open to jobs with lower salaries.
“Whatever they offer, I’ll probably just take it,” she said. “Having something is better than nothing.”
Write to Hannah Miao at hannah.miao@wsj.com and Katrina Northrop at katrina.northrop@wsj.com