CHINA’S factory output growth slumped to an eight-month low in July, while retail sales slowed sharply, raising pressure on policymakers to roll out more stimulus to revive domestic demand and ward off external shocks to the $19 trillion economy.
The underwhelming indicators come as officials navigate pressure on multiple fronts ranging from US President Donald Trump’s trade policies to extreme weather, excessive competition in the domestic market, and chronic weakness in the property sector.
Industrial output grew 5.7 per cent year-on-year in July, National Bureau of Statistics data showed yesterday, the lowest reading since November 2024, and compared with a 6.8pc rise in June. It missed forecasts for a 5.9pc increase in a Reuters poll.
Retail sales, a gauge of consumption, expanded 3.7pc in July, the slowest pace since December 2024, and cooling from a 4.8pc rise in the previous month. They missed a forecast gain of 4.6pc.
A temporary trade truce reached between China and the United States in mid-May, which was extended by another 90-days this week, has prevented US tariff rates on Chinese goods from returning to prohibitively high levels. However, Chinese manufacturers’ profits continue to take a hit from subdued demand and factory-gate deflation at home.
“The economy is quite reliant on government support, and the issue is those efforts were ‘front-loaded’ to the early months of 2025, and by now their impact has somewhat faded out,” said Xu Tianchen, senior economist at the Economist Intelligence Unit.
That policy support has helped the world’s second-largest economy avoid a widely anticipated sharp slowdown, along with factories taking advantage of the US-China trade truce to front-load shipments, but analysts say weak demand at home and global risks will drag on growth in coming quarters.
Fixed asset investment grew just 1.6pc in the first seven months of the year from the same period last year, compared with an expected 2.7pc rise. It had expanded 2.8pc in the first half.
“Firms may be running on existing capacity rather than building new plants,” said Yuhan Zhang, principal economist at The Conference Board’s China Centre.
“The July industrial value-add breakdown tells a more nuanced story than the weak fixed asset investment headline,” he added, pointing to China’s automobile manufacturing, railway, shipbuilding, aerospace and other transport equipment industries as “outliers (that) indicate policy-driven, high-tech and strategic sectors are still attracting substantial capital.”
Beijing has recently stepped up policy measures and made pledges to prop up domestic consumption and curb excessive price competition, as authorities strive to lift economic growth towards the government’s 2025 target of around 5pc.
Still, consumers show few signs of loosening their purse strings. China’s new yuan loans contracted in July for the first time in 20 years, separate bank lending data showed on Wednesday, pointing to weak private sector demand.
A protracted slowdown in China’s property sector continues to put pressure on consumer spending, as real estate remains a key store of household wealth.
New home prices extended a stagnant phase of over two years, falling 2.8pc in July year-on-year, versus a 3.2pc drop in June.
Economic activity has also been impacted by extreme weather, from record-breaking heat to storms and floods across the country, disrupting factory production and day-to-day business operations.
The latest Reuters poll projected China’s GDP growth to slow to 4.5pc in the third quarter and 4.0pc in the fourth, suggesting that Beijing has its work cut out in getting households to spend more at a time of uncertainty over job security and mounting headwinds from Trump’s global trade war.
China’s 2025 GDP growth is forecast to cool to 4.6pc – falling short of the official goal – from last year’s 5.0pc and ease even further to 4.2pc in 2026, according to the poll.
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