China’s Retail Sales Grew in July, But Industrial Production and Investment Lag Behind

China's retail sales grew by 2.7% in July, surpassing expectations and marking an improvement from June's 2.0% increase. However, industrial production and fixed-asset investment showed slower growth, highlighting the uneven recovery of the world's second-largest economy.

China’s Retail Sales Rise in July, But Slowing Industrial Production and Investment Highlight Uneven Recovery

According to a recent report by Nikkei Asia, in July, China's retail sales expanded at a higher rate than the previous month, while industrial production and investment declined. This underscores the uneven recovery of the world's second-largest economy.

According to data released by the National Bureau of Statistics (NBS) on August 15, the total retail sales of consumer products, which serve as an indicator of household expenditures, increased by 2.7% from the previous year. In a Bloomberg poll, the expansion rate was slightly higher than the consensus forecast of 2.6%, and it was also quicker than June's 2.0%, the lowest reading since December 2022.

Industrial production increased by 5.1% from the previous year, which was lower than the 5.3% increase observed last month and fell short of the 5.2% forecast.

In the interim, fixed-asset investment experienced a 3.6% increase in the first seven months of the year, which was lower than the 3.9% recorded in January-June and was below expectations. This suggests that investment experienced a substantial slowdown during the first month of the third quarter. The most significant detractor throughout the period was the 10.2% decline in real estate investment.

Continuing the declines observed in June, new home prices in significant cities such as Beijing and Shanghai decreased by 4.2% in July. In lesser cities, a comparable pattern was observed.

In the second quarter, China's gross domestic product increased by 4.7% yearly, falling short of expectations and putting pressure on the authorities, who are committed to achieving a year-end goal of "approximately 5%."

China's 5% Growth Target in Doubt Amid Sluggish Consumption and Investment, Says J.P. Morgan Economist

According to Zhu Haibin, chief China economist at J.P. Morgan in Hong Kong, the issue of whether China can achieve its 5% growth target was reopened following the release of second-quarter data. He cited sluggish growth in household consumption and property investment. The U.S. lender reduced the full-year GDP growth target to 4.7% by the second-quarter data. Zhu stated that the objective was contingent upon the government's implementation of "a gradual and calibrated policy approach."

In July, Chinese policymakers announced a comprehensive package of fiscal support and lending rate reductions to support household spending and business confidence, emphasizing increasing consumption.

Last month's economic data could have been more optimistic. In July, manufacturing activity decreased for the third consecutive month due to persistently low demand. Exports were less robust than anticipated, but imports increased by 7.2% yearly, suggesting that stimulus measures bolstered industrial demand.