BEIJING, CHINA – 2026/07/18: Shoppers stroll along a landscaped path near the POLÈNE luxury goods store in Sanlitun, carrying bags and enjoying the bustling scene.
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China’s economy lost momentum across the board in July, as consumer spending stalled and urban investment contracted at a faster pace while unemployment ticked higher, adding to pressure on Beijing to step up support in the second half.
Retail sales eked out a 0.6% growth from a year earlier, according to the National Bureau of Statistics on Monday, missing the estimated 1.5% jump in a Reuters poll, and slowing from the 1% growth in June.
China’s urban fixed-asset investment, including real estate and infrastructure, contracted 6.7% this year as of end-July from a year earlier, worse than the estimated 6% decline in the poll. The decline also steepened from the 5.7% drop in the first half of this year.
Industrial output rose 4.5% in July, undershooting the estimated 4.8% growth and slowing from 5.3% rise in June.
The urban unemployment rate stood at 5.2% in July, ticking up from 5% in June.
The data, which was released at 3 p.m. instead of the usual 10 a.m., reinforced concerns about the health of the world’s second-largest economy that has grappled with a deepening supply-demand imbalance.
Industrial production and exports tied to the global AI investment boom have helped cushion weak consumption and private investment, but July data suggest that support may be thinning.
China must “accelerate the transition to new growth drivers,” the statistics bureau said in the English statement, while calling for greater reforms and opening up further.
During the Monday presser, statistics bureau spokesperson Fu Linghui said that geopolitical pressure abroad and high temperatures domestically impacted China’s economy last month. While acknowledging that key economic metrics softened last month, Fu pointed to 5% growth in services retail sales over the first seven months of the year, versus 1.1% jump in retail sales of goods.
Exports, new growth drivers and macro policy would support China’s economy in achieving the full-year growth target, despite “shocks” from extreme weather in July, Fu added.
Consumption slowdown
China’s retail sales growth has slowed sharply over the past year, with nominal growth easing to just 1.3% in the first half of this year from 5% in the same period last year, according to Goldman Sachs, as a government trade-in subsidy program that pulled purchases forward has since become a drag.
China’s consumer inflation had eased to a six-month low of 0.5% in July, while core CPI, excluding volatile food and energy prices, rose 0.9%.
Wang Guanhua, another statistics bureau spokesperson, said Monday that the softening consumer inflation in July was in part due to the dip in global crude oil prices, and cited the latest Politburo meeting’s plan for more fiscal support.
In another sign of persistent weakness in spending, new bank loans issued in July — typically a slow month for lending — recorded their largest monthly decline on record, according to Barclays. Household loans, including mortgages, shrank in July after a brief recovery in June, according to CNBC’s calculation of official figures, amid soft housing activity and a weak labor market.
Mortgage demand has weakened through the multi-year property downturn, while banks, wary of borrowers’ repayment capacity, have grown more reluctant to lend.
Unemployment worries
The jobs picture may be worse than official figures suggest. A private survey conducted by the team of Li Daokui, a professor of economics at Tsinghua University, showed China’s broad unemployment rate at 10.2% as of July, significantly higher than the official figures of around 5%.
The survey, counting in people who have been jobless for the past two years and are no longer covered in the official labor force survey, also showed that more than half of the roughly 24 million long-term unemployed are aged 16 to 24.
Official youth unemployment rate stood at 14.9% in June, the highest rate for the same month since the government excluded university students from the sample more than two years ago.
Investment slump
Behind the weak hiring is a slump in investment. Urban investment declined for the first time in decades last year, falling 3.8% from a year earlier, and has deteriorated further this year, as the property downturn and tighter constraints on local governments’ borrowing hampered one of China’s traditional growth drivers.
Investment in real estate declined 19.2% in the first seven months this year, while infrastructure and manufacturing investment contracted 3.6% and 1.7%, respectively.
Signaling state priorities, high-tech investments grew by 5% year on year during the first seven months of the year. The category includes information services, aerospace and equipment manufacturing.
The intensity of pullback in overall investment has been “unprecedented,” said Li, describing the contracting investment and high youth unemployment as the biggest obstacles to China meeting its growth targets.
Factory and construction activity also lost momentum in July, with the official manufacturing PMI unexpectedly contracting for the first time since February.
Amid Mideast energy disruption, crude oil production in China rose 0.8% in July from a year ago to a record-high, Fu said. He added that natural gas and electricity production remained high in July, ensuring sufficient daily supply.
Stimulus expectations
The latest data point to “further downside risks” that call for a more effective policy response, said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, raising his expectations for an interest-rate cut by the People’s Bank of China.
While the Chinese top leadership last month pledged stronger fiscal spending, implementation and transmission will take time, Zhang said.
“Accelerated fiscal execution following the July Politburo meeting will probably support activity,” said Sheana Yue, senior economist at Oxford Economics. Citing July’s weak starting point, she expects only a modest pick-up in the second-half and is keeping her growth forecast at 4.8%.
