China's July Retail Sales Stall at 0.6% as Investment Slump Deepens

China's economy lost momentum across the board in July, with retail sales eking out 0.6% growth from a year earlier and urban investment contracting 6.7% year-to-date, deepening pressure on Beijing to expand stimulus in the second half.

"The intensity of the pullback in investment has been unprecedented," said Li Daokui, a professor of economics at Tsinghua University, who called contracting investment and high youth unemployment the biggest obstacles to China meeting its growth targets.

Retail sales missed the 1.5% jump forecast in a Reuters poll and slowed from 1% in June, the National Bureau of Statistics said Monday. Urban fixed-asset investment, including real estate and infrastructure, fell 6.7% in the January-to-July period, worse than the estimated 6% decline and steeper than the 5.7% drop in the first half. Industrial output rose 4.5%, undershooting the 4.8% estimate and slowing from 5.3% in June, while the urban unemployment rate ticked up to 5.2% from 5%.

The figures, released at 3 p.m. instead of the usual 10 a.m., reinforce concerns about a deepening supply-demand imbalance in the world's second-largest economy. They follow second-quarter growth of 4.3%, the slowest since late 2022, leaving first-half expansion at 4.7% — within Beijing's 4.5%-5% target range but dependent on further support.

Consumption Drag Deepens as Trade-In Support Fades

Retail sales growth has slowed sharply over the past year, with nominal growth easing to 1.3% in the first half from 5% in the same period last year, 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, estimating full-year growth of about 1.5%. New bank loans issued in July recorded their largest monthly decline on record, according to Barclays's calculations of official data released Friday by the People's Bank of China, with household loans including mortgages shrinking after a brief recovery in June.

The jobs picture may be worse than official figures suggest. A private survey by Li's team showed China's broad unemployment rate at 10.2% as of July, well above the official 5.2%, counting people jobless for the past two years who are no longer in the official labor force survey. More than half of the roughly 24 million long-term unemployed are aged 16 to 24.

Investment Pullback Threatens Growth Target

Behind the weak hiring is a slump in investment. Urban investment declined for the first time in decades last year, falling 3.8%, and has deteriorated further this year as the property downturn and tighter constraints on local government borrowing hampered one of China's traditional growth drivers. Li called for a substantial expansion in government borrowing to more than double this year's planned 12 trillion yuan ($1.7 trillion) in new debt issuance.

Exports remain a rare bright spot, with the global AI buildout helping offset headwinds from the Middle East conflict. Exports rose 23.9% in July after a 27% surge the previous month, the fastest since 2021, while imports climbed 27.5%. Beijing's trade surplus reached $687.4 billion in the January-to-July period, putting it on track for another trillion-dollar-plus surplus in 2026 — a standing grievance for trading partners that raises the risk of fresh restrictions.

The weak data weighed on regional markets, with MSCI's broadest index of Asia-Pacific shares outside Japan flat Monday as investors weighed softer U.S. economic data against elevated oil prices near $88.50 a barrel for Brent after Strait of Hormuz disruptions. The Federal Reserve held its target range at 3.5%-3.75% on July 29, with three members voting for a 25-basis-point increase, and markets now price a lower probability of a September hike after soft U.S. inflation readings.

The next test for Beijing comes with August activity data due in mid-September, following the manufacturing PMI that unexpectedly contracted in July for the first time since February as domestic orders slumped. If consumption and investment fail to stabilize, economists expect Beijing to lean more heavily on fiscal expansion and further monetary easing through tools such as the 1-year MLF rate.

This article is for informational purposes only and does not constitute investment advice.