China’s economic woes mount with disappointing start to second half

China's economic performance in the second half of the year has been disappointing, raising concerns about the stability of the growth target of 4.5%-5%. Industrial production expanded by 4.5% year-on-year in July, slower than the median forecast of 5% by economists surveyed. Retail sales growth slowed to 0.6%, while fixed-asset investment fell 6.7% year-on-year in the first seven months, below expectations.

The urban unemployment rate rose to 5.2% from 5% in June. These underwhelming figures indicate a deterioration in domestic demand and highlight the need for policy support to stabilize growth. Extreme weather disruptions, such as heavy rainfall and strong winds, have temporarily halted factories, ports, and caused power outages.

Policymakers closely monitor the data as they assess whether additional aid is necessary to meet their growth objectives. Despite the economy remaining "stable" so far this year, external factors are complex and volatile, and domestic demand has consistently been weak. The property market slump, low new-home prices, and 19.2% plunge in real estate investment in the first seven months have further dampened household confidence.

China's leaders acknowledged the situation at a policy meeting but did not announce fresh stimulus measures. Instead, they vowed to devise "pragmatic and effective" actions in due time. The slowdown in consumer and producer inflation in July, due to the oil shock from the Iran war subsiding, has raised concerns about a potential deflationary trend.

Passenger vehicle purchases dropped by 21% in July, signaling a significant challenge for the auto sector, which contributes the most to retail sales.