China’s industrial output slows in July, retail sales miss forecasts

China's industrial output growth slowed to 4.5% year-on-year in July, missing expectations for a 4.8% increase, according to data released by the National Bureau of Statistics. The slowdown in industrial output is attributed to extreme weather conditions, including three typhoons that disrupted manufacturing hubs in eastern and southern China.

Retail sales, on the other hand, grew by 0.6% in July, lower than the 1% increase expected in a Reuters poll of 26 analysts. Policymakers have been relying on trade-in subsidies to support purchases of autos, home appliances, and other durable goods, but the pace of subsidy distribution weakened again in July, with daily average sales dropping to 6.3 billion yuan from 9 billion yuan in June.

Auto sales declined for a 10th consecutive month in July, although at a slower pace, reflecting strong external demand as automakers seek overseas expansion to offset domestic weakness. Fixed-asset investment contracted 6.7% in the first seven months of 2026, compared to an expected 6% decline, and fell 5.7% in the January-June period.

The weak economic indicators highlight concerns about the economy's momentum heading into the second half of the year, with robust exports and double-digit growth in imports and exports continuing to support China's factories, but weak domestic demand remains a major risk.

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