RESOLVING THE LEDGER
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See the full story · 1 sourcesChina's economy lost momentum across the board in July, as consumer spending stalled and urban investment contracted at a faster pace while unemployment ticked higher, adding to pressure on Beijing to step up support in the second half.
Retail sales eked out a 0.6% growth from a year earlier, according to the National Bureau of Statistics on Monday, missing the estimated 1.5% jump in a Reuters poll, and slowing from 1% in June .
China's urban fixed-asset investment, including real estate and infrastructure, contracted 6.7% this year as of end-July from a year earlier, worse than the estimated 6% decline in the poll. The decline also steepened from the 5.7% drop in the first half of this year.
Industrial output rose 4.5% in July, undershooting the estimated 4.8% growth and slowing from 5.3% rise in June.
The urban unemployment rate stood at 5.2% in July, ticking up from 5% in June .
The data, which was released at 3 p.m. instead of the usual 10 a.m., reinforced concerns about the health of the world's second-largest economy that has grappled with a deepening supply-demand imbalance.
Robust industrial production and exports tied to the global AI investment boom have powered headline growth, even as consumption and private investment have weakened amid a prolonged property downturn and volatile energy prices.
The July figures came after the economy posted its slowest growth since late 2022 in the second quarter, expanding just 4.3% from a year earlier. China's 4.7% GDP growth in the first half year puts the economy on track to meeting Beijing's growth target range of 4.5%-5%.
China's retail sales growth has slowed sharply over the past year, with nominal growth easing to just 1.3% in the first half of this year from 5% in the same period last year, according to Goldman Sachs.
The bank attributed much of the slowdown to a government trade-in subsidy program that pulled purchases forward and has since become a drag. "Real momentum was likely even weaker given higher CPI inflation," Goldman economists said in a note last Friday.
Sales growth will probably stay weak in the second half as fading support from the trade-in scheme continues to depress consumption, leaving full-year growth at about 1.5%, Goldman estimates.
In another sign of persistent weakness in spending, new bank loans issued in July — typically a slow month for lending — recorded their largest monthly decline on record, according to Barclays's calculations of the official data released last Friday by the People's Bank of China.
Household loans, including mortgages, shrank in July after a brief recovery in June , according to CNBC's calculation of official figures, amid soft housing activity and a weak labor market.
Mortgage demand has weakened through the multi-year property downturn, while banks, wary of borrowers' repayment capacity, have grown more reluctant to lend.
The jobs picture may be worse than official figures suggest. A private survey conducted by the team of Li Daokui, a professor of economics at Tsinghua University, showed China's broad unemployment rate at 10.2% as of July, significantly higher than the official figures of around 5%.
The survey, counting in people who have been jobless for the past two years and are no longer covered in the official labor force survey, also showed that more than half of the roughly 24 million long-term unemployed are aged 16 to 24.
Behind the weak hiring is a slump in investment. Urban investment declined for the first time in decades last year, falling 3.8% from a year earlier , and has deteriorated further this year, as the property downturn and tighter constraints on local governments' borrowing hampered one of China's traditional growth drivers.
The intensity of pullback in investment has been "unprecedented," said Li, describing the contracting investment and high youth unemployment as the biggest obstacles to China meeting its growth targets. Li called for a substantial expansion in government borrowing to more than double this year's planned 12 trillion yuan ($1.7 trillion) in new debt issuance.
Factory and construction activity also lost momentum in July, with the official manufacturing purchasing managers' index (PMI) unexpectedly contracting for the first time since February, as domestic orders slumped and extreme weathers, like typhoon and heavy rainfalls, disrupted port activity and business operation last month.
Exports remain a rare bright spot in a cooling economy, with the global AI buildout helping offset headwinds from the Middle East conflict. Exports rose 23.9% in July from a year earlier, beating estimates, after a 27% surge the previous month that was the fastest since 2021. Imports climbed 27.5%, short of forecasts.
Beijing's massive trade surplus has become a standing grievance for its trading partners, raising the risk of fresh trade restrictions aimed at forcing a trade rebalancing from Beijing, analysts say. China's trade surplus reached $687.4 billion in the January-to-July period, putting it on track for another trillion-dollar-plus surplus in 2026.
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