China’s economy lost momentum across several key sectors in July, raising fresh concerns about the strength of the world’s second-largest economy and increasing pressure on Beijing to introduce stronger measures to support growth.
Official data showed that retail sales grew just 0.6% year-on-year in July, well below the 1.5% growth expected by analysts and down from 1% in June.
The weakness in consumer spending was accompanied by a sharper decline in investment and slower industrial production, pointing to a broad-based loss of economic momentum.
Investment Slump Deepens
China’s urban fixed-asset investment, which includes infrastructure and property-related investment, declined 6.7% in the first seven months of the year compared with the same period a year earlier.
The decline was sharper than the 6% contraction forecast by analysts and exceeded the 5.7% fall recorded during the first half of the year.
Real estate investment remained particularly weak, falling 19.2% during the first seven months. Infrastructure investment declined 3.6%, while manufacturing investment fell 1.7%.
The continued weakness in property and investment is significant because both sectors have traditionally been major drivers of China’s economic expansion.
Industrial Growth Also Slows
Industrial production increased 4.5% in July, slowing from 5.3% growth in June and falling short of the 4.8% expansion expected by analysts.
The data suggest that China’s manufacturing sector is also losing momentum despite strong export performance in recent months.
China’s official urban unemployment rate meanwhile rose to 5.2% in July, compared with 5% in June.
Weak Consumer Demand Remains a Concern
Economists have increasingly highlighted weak domestic consumption as one of China’s biggest economic challenges.
Government trade-in subsidies previously helped support consumer spending by encouraging purchases of vehicles, appliances and other goods. However, economists say the impact of those measures is now fading.
The prolonged property downturn has also weakened household confidence and reduced demand for mortgages and other forms of credit.
Exports Provide Some Relief
Exports remain one of the few bright spots in China’s economy.
Chinese exports rose strongly in July, supported in part by global demand linked to investment in artificial intelligence and technology.
However, the country’s large trade surplus has created growing tensions with major trading partners, increasing the risk of additional trade restrictions and pressure on Beijing to rebalance its economy toward domestic consumption.
Pressure Builds on Beijing
The latest figures have increased expectations that China’s policymakers may need to provide stronger fiscal and monetary support during the second half of the year.
Economists have called for measures to stimulate household spending, support investment and address weaknesses in the property sector.
China’s statistics authorities have also acknowledged the need to accelerate the transition toward new sources of economic growth, alongside further reforms and greater economic opening.
The July figures follow China’s relatively weak second-quarter performance, when economic growth slowed to its weakest pace since late 2022.
Despite the slowdown, China’s first-half growth remained broadly consistent with Beijing’s annual target range.
However, persistent weakness in consumption, investment, property and employment could make it increasingly difficult to maintain growth momentum without additional policy support.
Outlook
China’s economy is therefore facing a delicate balancing act: exports and industrial production continue to provide support, but domestic demand, property investment and employment remain significant weaknesses.
The coming months will show whether Beijing’s promised fiscal measures and economic reforms can revive consumer confidence and investment, or whether China’s slowdown becomes more deeply entrenched.
