China’s retail sales, factory activity lagged in July

Beijing, China - China's retail sales and factory activity slowed in July, official figures revealed on Monday, falling short of expectations and underscoring ongoing challenges for the world's second-largest economy. The Chinese leaders have been grappling with weak domestic spending since the end of the Covid-19 pandemic, posing a threat to overall growth, despite strong performances in exports and certain high-tech industries.

Beijing aims for economic growth of 4.5-5% this year, the lowest target in decades, yet the economy lagged behind this goal in the second quarter. The National Bureau of Statistics (NBS) reported that retail sales expanded by 0.6% in July, markedly below the 1.5% forecast in a Bloomberg survey and down from the 1% growth recorded in June.

Industrial production growth decelerated to 4.5% year-on-year in July, from 5.3% in the previous month, missing the 5% forecast in the Bloomberg survey. NBS spokesman Fu Linghui attributed the July slowdown to persistent international geopolitical conflicts and the volatile global energy market. Fu also attributed the decline to severe weather impacting certain Chinese regions, noting that authorities had taken active steps to mitigate both internal and external risks.

Another indicator of the challenges ahead was the 6.7% year-on-year drop in fixed-asset investment from January to July, according to the NBS. Economists argue that China must pivot towards a growth model centered on household spending, rather than the conventional drivers of the past, such as real estate and infrastructure investment.

A trade report released this month revealed that exports and imports surged, driven by heightened overseas demand for AI-related technology products. Exports have been crucial in buoying China's extensive manufacturing sector amid the slump in domestic spending.