China’s economy experienced a comprehensive cooling in July, with all three major core indicators dropping below market expectations, indicating weak domestic demand, a sluggish real estate market, extreme weather, and external pressures all impacting economic growth.
On Friday, August 15, China’s National Bureau of Statistics released data showing that retail sales in July only increased by 3.7% year-on-year, falling below the estimated 4.6% and significantly slowing down from June’s 4.8%, marking the lowest level so far this year.
Industrial value added grew by 5.7% year-on-year, the lowest since November last year, below the projected 5.9% and weaker than June’s 6.8%.
From January to July, fixed asset investment increased by 1.6% year-on-year, below the market’s expected 2.7% and lower than the first half of the year at 2.8%; real estate investment saw a widened decline, dropping by 12% year-on-year in the first seven months.
Goldman Sachs estimates that fixed asset investment alone decreased by 5.2% year-on-year in July, marking the largest decline since the outbreak of the pandemic in March 2020.
Despite long-standing doubts from the outside world that the Chinese authorities may manipulate statistical data, painting a too optimistic picture of the economic situation, various indicators in the official July data still show simultaneous weakening trends, struggling to conceal downward pressure.
China’s credit activity hit a rare low in July, with new loans in renminbi contracting for the first time in 20 years, highlighting the subdued willingness of private sectors to borrow and spend.
Employment pressures are on the rise, with the urban survey unemployment rate reaching 5.2%, higher than May and June’s 5.0%; the unemployment rate for the non-student population aged 16 to 24 has remained above 14% for over a year.
The real estate market continues to struggle, with new home prices stagnating for over two years, dropping by 2.8% year-on-year in July, slightly narrowing from June’s 3.2% decline, yet overall still showing weakness. Meanwhile, development investment, construction starts, and completion areas have all significantly declined, with real estate development investment dropping by 12% year-on-year from January to July, marking the worst performance in over five years, reflecting developers’ pessimism about the market outlook even as price declines moderate.
Analysts point out that China’s economic momentum slowing down is not only due to external impacts but also internal policy and structural issues dragging it down.
President Trump’s tariff measures against China continue to pressure Chinese exports and manufacturing, despite a 90-day extension of the tariff suspension agreement reached in May between the US and China to temporarily avoid a return to high tariffs. Core disputes, ranging from tech access, critical minerals, industrial policies, and geopolitical stances, remain unresolved.
Domestically, Beijing has been strengthening its policies to combat “involution” by limiting excessive competition, which has also restrained investment and expansion in certain industries.
Extreme weather conditions like high temperatures, heavy rain, and floods hitting multiple regions disrupted factory production and construction progress, compounded by traditional off-peak season effects, exacerbating the economic slowdown in July.
Multiple institutions predict that China’s economic growth rate this year may fall below the official 5% annual target.
A Reuters survey shows that China’s Gross Domestic Product (GDP) growth in 2025 may decrease to 4.6% and further slow down to 4.2% in 2026; growth rates in the third and fourth quarters are expected to be 4.5% and 4.0%, respectively.
Zichun Huang, China economist at Capital Economics, stated, “We see little reason for significant economic recovery in the remaining time this year. The latest political conference did not promise additional fiscal support, indicating that the fiscal tailwind is fading away.”
Jacqueline Rong, chief China economist at BNP Paribas SA, noted, “The comprehensive decline in manufacturing, real estate, and infrastructure investments in July is ‘extremely rare’.”
She said that in order to curb the so-called “involution,” local governments have had to “strictly control” new investments in fiercely competitive or overcapacity industries, which has also dampened manufacturing expenditures.
She added, “If economic data in August continues to be weaker than expected, policymakers may introduce additional support measures by the end of September or early October to support growth in the fourth quarter.”
Lynn Song, chief Greater China economist at ING, stated that the continuous decline in house prices suppresses consumer confidence.
” It is difficult to expect residents to increase spending with their primary assets depreciating every month,” Song said.
Chang Shu, chief Asian economist at Bloomberg Economics, and Eric Zhu, a China economist, analyzed, “China’s economy lost momentum in July at a speed beyond expectations, strengthening the case for increased stimulus in Beijing. Of particular note, consumption continued to rapidly slow down after unexpectedly weakening in June, while investments (a key lever for fiscal stimulus) also contracted year-on-year in July, a situation that is not common.”