China’s Economic Struggles
China’s policymakers are facing immense pressure to revive the domestic economy after the release of underwhelming data for July. The data showed that factory output had slumped to an eight-month low, while retail sales had also slowed sharply. These results could worsen in the coming months if no deal is reached with the US on tariffs and the country continues to struggle with weak consumption and extreme weather.
Factory Output and Retail Sales
Industrial output grew 5.7% year-on-year in July, which is the lowest reading since November 2024. Retail sales, a gauge of consumption, expanded 3.7% in July, the slowest pace since December 2024. This slowdown in retail sales is a significant concern for the Chinese economy, as it indicates that consumers are not spending as much as they used to.
Trade Truce and Its Impact
The temporary trade truce reached between China and the US in mid-May was extended by another 90 days, which prevented US tariff rates on Chinese goods from returning to three-digit levels. However, Chinese manufacturers’ profits continue to take a hit from subdued demand and factory-gate deflation at home. The trade truce has provided some relief, but it is not enough to boost the economy.
Lending Contracts and Investment
Fixed asset investment grew just 1.6% in the first seven months of the year, compared to 2.8% in the first half. This slowdown in investment is a significant concern, as it indicates that firms are not investing in new projects. The July industrial value-add breakdown tells a more nuanced story, with some sectors, such as automobile manufacturing and railway, shipbuilding, aerospace, and other transport equipment industries, still attracting substantial capital.
Property Values and Consumer Spending
The property sector, a key store of household wealth, continues to put pressure on consumer spending. New home prices extended a stagnant phase for over two years, falling 2.8% in July year-on-year. This decline in property values is making consumers cautious about spending, as they are worried about the value of their assets.
Extreme Weather and Economic Activity
Economic activity has also been impacted by extreme weather, from record-breaking heat to storms and floods across the country. This has disrupted factory production and day-to-day business operations, adding to the economic woes.
Forecasts and Expectations
The data and forecasts from analysts suggest that Beijing will have its work cut out in getting households to spend more at a time of uncertainty over job security and mounting headwinds from the global trade war. China’s 2025 GDP growth is forecast to cool to 4.6%, falling short of the official goal, and ease even further to 4.2% in 2026.
Conclusion
In conclusion, China’s economic struggles are a significant concern, and policymakers need to take urgent action to revive the economy. The slowdown in factory output, retail sales, and investment, combined with the decline in property values and the impact of extreme weather, are all contributing to the economic woes. The government needs to come up with a comprehensive plan to boost consumption, investment, and economic growth, and to address the concerns of households and businesses. Only then can China’s economy get back on track and achieve the desired growth rate.
About the Author
Jim Pollard is an Australian journalist based in Thailand since 1999. He worked for News Ltd papers in Sydney, Perth, London, and Melbourne before traveling through SE Asia in the late 90s. He was a senior editor at The Nation for 17+ years.
