Key Takeaways:
China's economy lost momentum across the board in July, with urban fixed-asset investment contracting 6.7 percent from a year earlier and retail sales eking out just 0.6 percent growth, deepening pressure on Beijing to expand stimulus in the second half.
"Real momentum was likely even weaker given higher CPI inflation," Goldman Sachs economists said in a note last Friday, attributing much of the retail slowdown to a government trade-in subsidy program that pulled purchases forward and has since become a drag. The bank estimates full-year retail sales growth of about 1.5 percent.
The National Bureau of Statistics data, released at 3 p.m. instead of the usual 10 a.m., showed urban fixed-asset investment including real estate and infrastructure fell 6.7 percent in the January-to-July period, worse than the 6 percent decline forecast in a Reuters poll and steeper than the 5.7 percent drop in the first half. Industrial output rose 4.5 percent in July, undershooting the 4.8 percent estimate and slowing from 5.3 percent in June, while the urban unemployment rate ticked up to 5.2 percent from 5 percent.
The figures follow second-quarter GDP growth of 4.3 percent, the slowest since late 2022, leaving first-half expansion at 4.7 percent against Beijing's 4.5-to-5 percent target range. With consumption and private investment weakening through a prolonged property downturn, the data reinforce concerns about a deepening supply-demand imbalance in the world's second-largest economy.
The pullback in investment has been "unprecedented," said Li Daokui, a professor of economics at Tsinghua University, describing contracting investment and high youth unemployment as the biggest obstacles to meeting growth targets. Total fixed-asset investment reached 26.03 trillion yuan ($3.7 trillion) in the first seven months, with real estate development investment down 19.2 percent, infrastructure down 3.6 percent and manufacturing down 1.7 percent.
Private investment fell 9.4 percent, while the contraction spread unevenly across regions — the northeast dropped 24.6 percent, the east and west each fell 8.6 percent, and the central region declined 6.4 percent. Monthly fixed-asset investment slipped 1.42 percent in July from June.
The weakness is concentrated in traditional growth drivers. Infrastructure investment fell 3.6 percent as tighter constraints on local government borrowing hampered spending, though information transmission investment rose 26 percent and water and air transport each climbed more than 15 percent. High-tech industry investment bucked the trend, rising 5 percent, led by information services and aerospace and spacecraft equipment manufacturing, which grew 19.2 percent and 12.3 percent respectively.
New bank loans issued in July recorded their largest monthly decline on record, according to Barclays's calculations of People's Bank of China data, with household loans including mortgages shrinking after a brief recovery in June. Mortgage demand has weakened through the multi-year property downturn while banks, wary of borrowers' repayment capacity, have grown more reluctant to lend.
The official jobs picture may understate the strain. A private survey by Li's team at Tsinghua showed China's broad unemployment rate at 10.2 percent as of July, well above the official 5.2 percent, counting people jobless for the past two years who are no longer covered in the official labor force survey. More than half of the roughly 24 million long-term unemployed are aged 16 to 24.
Exports remain a rare bright spot, rising 23.9 percent in July on the global AI investment boom after a 27 percent surge the prior month, the fastest since 2021. But the resulting trade surplus reached $687.4 billion in the January-to-July period, on track for another trillion-dollar-plus surplus in 2026 and raising the risk of fresh trade restrictions from partners pressing for rebalancing.
Li has called for government borrowing to more than double this year's planned 12 trillion yuan ($1.7 trillion) in new debt issuance. With factory and construction activity contracting in July — the official manufacturing PMI unexpectedly fell below 50 for the first time since February — the case for stepped-up fiscal support is likely to dominate policy debate ahead of the next data releases in September.
This article is for informational purposes only and does not constitute investment advice.
