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China Economic Activity July 2023

China: Industry, investment and retail data disappoints in July

Industrial output expanded 3.7% year on year in July (June: +4.4% yoy). July’s weakening was driven by decelerations in manufacturing and mining. Moreover, nominal fixed investment rose at a softer pace of 3.4% in January–July (January–June: +3.8%), the worst result since December 2020. Primary, secondary and tertiary investment momentum eased, while a contraction in private investment was only partly offset by growth in government investment.

Finally, retail sales expanded 2.5% year on year in July, down from 3.1% in June. Sales of building materials and home appliances fell sharply, likely linked to weak housing demand. That said, the retail data likely overplayed the weakness of consumer spending, as it does not account for domestic tourism, which has surged in recent months.

The readings for industrial output, investment and retail sales all notably undershot market expectations, and spurred monetary easing by the Central Bank on the day of their release.

On the data and outlook, EIU analysts said:

“The data affirm the recent downgrade to our growth outlook for China to 5.2%. The MLF rate cut—and an expected commensurate decrease in benchmark lending rates—reflects urgency to step up policy support, with the weaker than expected data release exacerbating the risk that the economy will miss the official target of ‘about 5%’ growth in 2023.”

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