Growth momentum slowed significantly in July despite stronger-than-expected trade performance. Retail sales and FAI contracted, and IP growth slowed m/m, confirming weaker domestic demand. Monthly data disappointment may not prompt policy shift; policy implementation likely to be expedited, Standard Chartered’s economists report.
Services sector remains a stabiliser
Real activity data for July points to broad-based weakening, especially in domestic demand. Industrial production (IP), fixed asset investment (FAI) and retail sales growth slowed tangibly, coming in much weaker than market expectations. Meanwhile, trade growth accelerated in July, beating expectations, partly due to export front-loading before US global reciprocal tariffs became effective in early August.
“The investment drag spread beyond the housing sector in July. Property investment contracted deeper, by 17% y/y, as per our estimate. FAI in both manufacturing and infrastructure recorded a y/y decline for the first time since 2021. Inclement weather may have disrupted construction, and recent capacity management actions may have weighed on equipment capex. Consumer goods retail sales contracted m/m for a second straight month, suggesting softer household demand. The consumer goods trade-in programme boost likely diminished after June’s online shopping promotions. Meanwhile, services retail sales growth stayed solid at 5.2% y/y in 7M-2025. Services production index growth also remained robust at 5.8% y/y, likely mitigating the impact on headline GDP.”
“The weak data should sound an alarm to China’s policy makers, but we think they are unlikely to shift policies abruptly based on single-month data points. The government may prioritise implementation of the current budget, including accelerating infrastructure investment, facilitating purchases of unsold homes and undeveloped land, and expanding the trade-in programme to services, while preparing a contingency plan to prevent any further economic downturns.”
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