China data show weaker July demand

China’s July activity data pointed to a broad softening in domestic demand, with multiple indicators slowing from the previous month and coming in below market expectations. Retail sales grew 0.6% year-on-year in July, compared with 1.0% in June, undershooting estimates of roughly a 1.5% increase. Industrial output also decelerated, rising 4.5% year-on-year after a 5.3% gain in June and similarly missing forecasts. The data highlight weaker consumer spending and manufacturing activity at the start of the third quarter.

The National Bureau of Statistics cited geopolitical pressures abroad and high domestic temperatures as factors weighing on economic performance in July. Authorities emphasised the need to accelerate the transition to new growth drivers and to deepen reforms and opening up. The figures added to concerns that the domestic side of the economy is under strain despite headline growth remaining broadly aligned with official objectives.

Fixed-asset investment remained a key drag. Overall urban fixed-asset investment, covering infrastructure, manufacturing and property construction, contracted 6.7% in the January to July period compared with a year earlier. Within this, property investment fell 19.2% in the first seven months, marking the steepest decline among major investment categories. Infrastructure investment declined 3.6%, while manufacturing investment slipped 1.7% over the same period.

The persistent downturn in property investment underscores ongoing weakness in the real estate sector, which has traditionally been a major contributor to growth. The simultaneous contraction in infrastructure and manufacturing investment suggests that both public and private capital spending are under pressure, limiting support from investment-led activity even as policymakers stress the importance of new growth drivers.

Labour market conditions showed some softening alongside weaker activity. The surveyed urban unemployment rate rose to 5.2% in July, up from 5.0% in June. The uptick in unemployment adds to signs that slower domestic demand is affecting job creation, particularly in consumption- and construction-related sectors.

In contrast to the domestic slowdown, external trade remained a relative bright spot. Exports rose sharply year-on-year in July, and imports also increased, providing support to headline growth. These trade gains helped offset some of the drag from weaker consumption and investment, highlighting the continued role of external demand in sustaining overall economic expansion.

The July readings followed a second-quarter GDP expansion of 4.3%, the slowest quarterly pace since late 2022. Even so, growth in the first half of the year was about 4.7%, keeping the economy broadly on track with Beijing’s stated target range. The combination of slowing activity indicators and still-solid overall growth underscores a widening divergence between external and domestic drivers.

The July activity data were released in the afternoon rather than the usual morning time slot, concentrating market attention later in the Asian trading session. The shift in timing drew focus to the figures, which reinforced the message that domestic demand remains fragile, while exports and policy guidance on structural upgrading and reform are increasingly important to the near-term outlook.