Retail Sales Improve in China for July, But Industrial Output Falls Short

By Jessica Huang

Cover Image Attribute: Qilai Shen/Bloomberg

In July, China’s retail sales outperformed expectations, while industrial production fell short of forecasts, according to a report released by the National Bureau of Statistics (NBS, 国家统计局) on Thursday. Retail sales saw a year-on-year increase of 2.7%, surpassing the 2.6% growth anticipated by a Reuters poll. Excluding automobiles, retail sales climbed to 3.6% in July, up from 3% in June, noted Bruce Pang, chief economist and head of research for Greater China at JLL. Pang highlighted that consumer spending played a significant role in counterbalancing weak investment during the month.
Despite this boost in consumer spending, industrial production grew by only 5.1% in July compared to the same period last year, slightly below the 5.2% growth forecast. Pang also emphasized that moving forward, it will be crucial to monitor retail sales in August and September to determine if consumption can shift into a major driver of economic growth, potentially reducing reliance on investment as a key contributor.
Fixed asset investment in China rose by 3.6% over the first seven months of the year, falling short of the 3.9% growth forecast by analysts. Real estate investment, in particular, dragged down overall fixed asset performance, with a decline of 10.2% on a year-to-date basis as of July, worsening from the 10.1% drop reported in June. Other key components, such as infrastructure and manufacturing, also showed signs of slowing growth, contributing to the broader deceleration in fixed asset investment. These figures reflect ongoing struggles in China’s economy as key sectors, particularly property, face mounting pressure.
According to Goldman Sachs analysts, the weaker-than-expected performance in fixed asset investment is likely due to a combination of adverse weather conditions and continued stagnation in the property sector, which outweighed any benefits from the government's gradual policy easing. China has been hit by at least 25 major floods as of August 1, the highest number since record-keeping began in 1998, and record-breaking heat waves have affected cities such as Shanghai. These extreme weather events have further compounded the challenges faced by the economy, particularly in areas like real estate and infrastructure. Additionally, the urban unemployment rate ticked up to 5.2% in July from 5% in June, adding to concerns about the health of the labor market.
The NBS acknowledged the difficulties posed by the external environment and insufficient domestic demand, noting that China is undergoing a transition as old growth drivers are replaced by new ones. While Beijing has recognized the need to boost domestic consumption, recent policy actions have fallen short of aggressive stimulus. Instead, leaders emphasized consumption as a key priority during the Politburo meeting in late July. Goldman Sachs warned that without more decisive policy easing, achieving the government’s full-year growth target of around 5% could be in jeopardy. However, some sectors have seen significant growth, such as new energy vehicles and advanced technology production, which surged in July. Even so, pockets of the economy, such as restaurant revenue and real estate-linked retail sales, continued to struggle, with growth in these areas remaining muted despite the broader retail recovery.
Official data released on Thursday showed that house prices in China continued to moderate, with a seasonally adjusted annualized decline of 7.6% month-on-month in July, as analyzed by Goldman Sachs. This data pertains specifically to new home sales, but analysts have pointed out that the secondary housing market is experiencing even sharper declines, with prices falling between 5% to 20% over the past year, based on both official and third-party sources. In terms of volume, the floor space of new residential buildings sold over the first seven months of 2024 fell by 18.6%, showing a slight improvement from the 19% drop recorded as of June.
Liu Aihua, spokesperson for the NBS, acknowledged that China’s real estate sector remains in a period of adjustment, which is contributing to broader economic challenges. The urban unemployment rate, which increased in July, was partially attributed to the graduation season, although there are deeper structural issues affecting employment across sectors. Notably, the jobless rate for young people aged 16 to 24 who are not in school stood at 13.2% in June, with July figures pending. Meanwhile, despite severe weather impacting parts of the economy, tourism remained a bright spot. China Railway (中国国家铁路集团有限公司) reported that rail trips surged by 6.1% between July 1 and August 12, and are on track to exceed last year’s record for the summer season. In addition, online sales of physical goods and sports and recreation equipment both saw notable growth in July, signaling a recovery in consumer demand from earlier in the year.
The other data for July suggests that consumer demand in China remains weak. Consumer prices rose by 0.5% year-on-year, driven by a spike in pork prices, while core inflation, excluding food and energy, slowed to 0.4% from 0.6% in the previous month. Meanwhile, the producer price index (PPI) fell by 0.8%, matching June’s decline but slightly better than expected. Officials, including Liu from the NBS, expect the PPI’s decline to ease in the second half of the year. On the trade front, imports rose by 7.2%, exceeding expectations, but export growth fell short at 7%. China’s second-quarter GDP grew by 4.7%, reflecting ongoing economic challenges from both external factors and the structural transformation necessary for high-quality development, as noted by a National Development and Reform Commission (NDRC, 中华人民共和国国家发展和改革委员会) official earlier this month.

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