Key Takeaways:
China's statistics bureau pledged to intensify counter-cyclical adjustment after July retail sales growth stalled at 0.6 percent, the weakest in months, exposing the supply-demand imbalance weighing on the economy.
Beijing will step up counter-cyclical and cross-cyclical regulation, expand domestic demand and optimize supply to counter external headwinds, Mao Shengyong, deputy head of the National Bureau of Statistics, said in a statement Wednesday.
The pledge followed a broad slowdown in July. Retail sales rose 0.6 percent from a year earlier, missing the 1.5 percent estimate in a Reuters poll and slowing from 1 percent in June. Urban fixed-asset investment contracted 6.7 percent in the first seven months, worse than the 6 percent forecast and a steeper decline than the 5.7 percent drop in the first half. Industrial output rose 4.5 percent, undershooting the 4.8 percent estimate, while the urban unemployment rate ticked up to 5.2 percent from 5 percent.
The data put the economy on track to miss the lower end of Beijing's 4.5 percent to 5 percent full-year target. Gross domestic product expanded 4.7 percent in the first half, but second-quarter growth slowed to 4.3 percent, the weakest since late 2022. The NBS acknowledged that the foundation for steady growth still needs consolidation.
The July figures reinforce the supply-demand imbalance that has defined the economy since the property downturn began. Strong industrial production and exports tied to the global artificial-intelligence investment boom have powered headline growth, while consumption and private investment have weakened. Exports rose 23.9 percent in July, beating estimates after a 27 percent surge in June, while imports climbed 27.5 percent, short of forecasts. The trade surplus reached $687.4 billion in the January-to-July period, putting the country on track for another trillion-dollar-plus surplus in 2026 and keeping the yuan under pressure from trading partners seeking rebalancing.
The People's Bank of China said Wednesday it would maintain an appropriately loose monetary stance and roll out practical measures as needed, but stopped short of explicit cuts to policy rates or banks' reserve-requirement ratio. The central bank will strengthen coordination with fiscal policy to support growth, it said in its quarterly monetary policy implementation report. Leaders pledged at a July meeting to accelerate fiscal spending on already-budgeted infrastructure projects in the second half rather than roll out major new stimulus.
The last time Beijing leaned on counter-cyclical language this heavily was in late 2022, when the economy was emerging from COVID lockdowns and the PBoC cut the reserve-requirement ratio twice within three months. The CSI 300 rose about 8 percent in the quarter following those moves. This time, a stronger-than-expected start to the year has given Beijing room to avoid a more forceful response, Reuters reported.
Retail sales growth has slowed sharply over the past year, with nominal growth easing to 1.3 percent in the first half from 5 percent a year earlier, according to Goldman Sachs. The bank attributed much of the slowdown to a government trade-in subsidy program that pulled purchases forward and has since become a drag. Sales growth will likely stay weak in the second half, leaving full-year growth at about 1.5 percent, Goldman estimates.
New bank loans issued in July recorded their largest monthly decline on record, according to Barclays calculations of official data, as household loans including mortgages shrank after a brief June recovery. A private survey by a Tsinghua University team led by economist Li Daokui put China's broad unemployment rate at 10.2 percent as of July, well above the official 5.2 percent, with more than half of roughly 24 million long-term unemployed aged 16 to 24. The investment pullback has been "unprecedented," Li said, calling contracting investment and high youth unemployment the biggest obstacles to meeting growth targets.
For global investors, the stakes are whether Beijing's incremental approach — fiscal acceleration on existing projects plus a loose-but-unchanged monetary stance — proves enough to stabilize demand. If July's weakness persists into August, pressure will build for a more forceful response before the year-end policy meetings.
This article is for informational purposes only and does not constitute investment advice.
