In early July, signs started emerging that the momentum in China’s economy was slowing again. Not surprisingly, key indicators across the board reflected an immediate drop in industrial output and retail sales, as unemployment rates surged. In July, the country’s industrial production growth fell to just 5.7%. This decrease from June’s 6.8% is a significant reversal from a period of strong economic activity.
China’s property market has imploded. They had a disastrous first seven months of the year where they were down 12% helping to contribute to that downward momentum. Residential housing investment declined almost 11% over the same quarter, adding to difficulties for the already beleaguered housing sector. Just as rising prices in the big cities housing fell 1.1%. More consumers were feeling the pinch, which has further crimped spending.
China’s capital spending on factory machinery and other fixed assets increased only 1.6% year-on-year from January through July. This increase is especially notable given the overall declines in other sectors. That marked a deceleration from the 2.8% growth pace seen during the first half of the year. This absence of solid investment acceleration should worry the nation’s economic rebound.
In July, retail sales were up only 3.7%. This uptick is the lowest rate of growth in seven months, down from June’s 4.8%. Consumer confidence is evaporating as the cohort of millions of recent university graduates enter the market. This abrupt change in the economy has contributed to pushing the unemployment rate up from 5% to 5.2%.
“Chinese economic activity slowed across the board in July, with retail sales, fixed asset investment, and value added of industry growth all reaching the lowest levels of the year,” – Lynne Song of ING Economics
While some sectors struggled, China’s exports surged by 7.2% year-on-year in July, offering a glimmer of hope amid the broader economic challenges. Imports grew at their fastest pace in a year, suggesting that demand for foreign goods remains strong despite domestic pressures.
Economists have warned that despite the relief exports have given, such growth is temporary and unsustainable. Sheana Yue of Oxford Economics commented on this trend:
“Exports remained a bright spot although the boost from front-loading appears to be tapering off and has started to show up in weak industrial production, as we anticipated.”
China’s consumer prices jumped 0.4% month-over-month. At the same time, producer prices, or wholesale prices, were down 3.6% from a year ago. Overall, these mixed signals are part of a confusing economic landscape in which inflationary pressures exist alongside deflationary trends in wholesale pricing.
The National Bureau of Statistics recognized the resilience of the Chinese economy, attributing some stability against external volatility and adverse domestic conditions to various sectors:
“notable resilience and vitality against the complex and volatile external environment and adverse impacts from extreme domestic weather,” – The statistics bureau
As analysts continue to look into these trends, anxiety grows that the current slump could be here to stay. Yue added that property prices “could continue to fall before stabilizing in 2028,” highlighting ongoing struggles within the housing market.
