Industrial output rose 4.5% year-on-year in July, slowing from 5.3% in June and below the 4.8% increase expected by economists surveyed by Reuters. Retail sales, meanwhile, increased just 0.6%, down from 1% growth in June and well below the 1.5% forecast.
The figures underline a widening imbalance within China’s economy. Manufacturing and exports have remained relatively resilient, partly supported by global demand for products linked to artificial-intelligence infrastructure. Domestic consumption, however, continues to face pressure from weak household confidence and a prolonged property downturn.
China’s property market remains a particular constraint. New home prices fell 3.2% from a year earlier in July and 0.1% from June, while property represents a substantial share of household wealth. Continued weakness in the sector limits the willingness of consumers to increase spending and complicates efforts to shift growth towards domestic demand.
Extreme weather also disrupted activity during July, with three typhoons making landfall and millions of people relocated across manufacturing centres in eastern and southern China. That suggests some of the slowdown may prove temporary, although the underlying weakness in consumption predates the weather disruptions.
The policy response will therefore be closely watched. Chinese leaders have pledged to accelerate fiscal spending and introduce measures in a timely manner, but have so far stopped short of announcing a large new stimulus package.
For global businesses, the implications extend beyond Chinese demand. A weaker domestic economy could affect commodity consumption, manufacturing orders and regional supply chains, while stronger exports could increase trade tensions with economies already concerned about China's large trade surplus.
What to watch: Beijing’s next fiscal measures, property-market indicators, household consumption and whether export strength can continue to offset weaker domestic demand.
