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

BEIJING: China's industrial output slowed while retail sales underperformed in July, signaling weakness in the domestic economy, according to official data. The weaker-than-expected figures come after a second-quarter growth rate that hit a three-and-a-half-year low, fueling concerns about the economy's lack of momentum heading into the latter half of the year.

Industrial output increased 4.5% year-on-year in July, down from 5.3% growth in June, falling short of market expectations for a 4.8% rise. Retail sales grew 0.6% in July, less than the 1% increase forecasted in June, despite summer tourism spending. Extreme weather, including three typhoons, disrupted factory output in the eastern and southern manufacturing regions.

Policymakers have been using trade-in subsidies to support purchases of durable goods, but the pace of subsidy distribution slowed in July. Auto sales dropped for the 10th consecutive month in July, although at a slower rate, highlighting challenges in domestic demand. Fixed-asset investment fell 6.7% in the first seven months of 2026, compared to an expected 6% decline.

Economic indicators suggest a weak start to the third quarter, with the manufacturing purchasing managers' index unexpectedly contracting and export and import growth moderating from June. Robust exports, driven by global AI infrastructure development, have sustained China's factories, but weak domestic demand remains a significant risk, making the economy vulnerable to shocks like weather disruptions and trade barriers.

Despite logging another month of over US$100 billion in trade surplus, China is facing pressure from trading partners, with the EU considering stricter measures to address its trade deficit with China, and the US announcing new tariffs on Chinese goods. Chinese leaders have pledged to boost the slowing economy through increased fiscal spending and new policies but have not signaled major stimulus measures.