The Chinese economy lost pace: consumption, industry and investment are weakening

China's economy noticeably lost momentum at the start of the second half of the year. In July industrial production slowed, retail sales almost stopped growing, and the decline in fixed asset investment deepened.

Retail sales in July grew only 0.6% year-on-year after a 1% increase in June. The result was significantly weaker than economists' expectations.

Industrial production grew by 4.5% against 5.3% a month earlier. It also fell short of analysts' forecasts.

Investment activity was an even weaker signal. In January-July fixed asset investment decreased by 6.7% compared to the same period of 2025. Following the first half of the year the decline was 5.7%, meaning the slump continued to deepen.

Exports remain the main pillar of the economy

The weakness of domestic demand contrasts sharply with external trade. Chinese exports in July grew by 23.9% year-on-year, supported in particular by shipments of technology products.

Thus, China's economy is increasingly dependent on industry and external markets, while consumption, real estate and private investment remain weak.

Among the reasons for the July deterioration, China's statistical agency also cites severe heat and heavy rains in certain regions that affected supply and demand. However, economists consider the protracted crisis in the real estate market and low household confidence a more fundamental problem.

An additional signal came from industry: the official purchasing managers' index for the manufacturing sector dropped below 50 points in July, pointing to a contraction in activity.

The weak July figures may increase pressure on Beijing to support domestic demand more actively. Chinese authorities have already declared their intention to accelerate budget spending and stimulate consumption in the second half of the year.

In the second quarter, China's GDP grew by 4.3% year-on-year after a stronger start to the year. This is below the official target range for economic growth in 2026 of 4.5-5%.

Based on materials from: Financial Times, South China Morning Post