Chinese economic activity slowed across the board in July, with retail sales, fixed asset investment, and industrial output all posting their lowest growth levels of the year. Analysts say the data suggests additional policy support may be needed to sustain momentum in the second half of 2025.
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Lynn Song, Chief Economist for Greater China at ING, noted: 'While domestic demand in China is holding up well, weakening external demand has dragged on economic growth.'
The property sector continues to face significant pressure. China's 70-city property price index indicated that prices continued to fall. From the peak, new home prices are down -10.7% and used home prices down -18.8%. New home prices slid by -0.31% month-on-month, a slight acceleration from June's -0.27% drop, marking the fourth consecutive month of steep declines. Used home prices fell -0.55% MoM, slightly smaller than June's -0.61% decline.
Song highlighted the challenge, stating: 'The accelerating downturn in property prices in the past few months signals that further policy support is needed. Given the high exposure of Chinese households to real estate, establishing a trough on prices is one of the most important factors to restoring confidence and generating a sustained consumption recovery. It's difficult to expect consumers to spend with greater confidence if their biggest asset continues to decline in value every month.'
There is some positive movement on policy support. Reports indicate renewed efforts for government acquisitions of unsold properties, although uptake has been limited due to tight local finances and reluctance in regions with heavy excess supply.
Retail sales also showed signs of cooling. Growth slowed to 3.7% year-on-year, down from 4.8%, below market expectations of 4.6%. Song explained: 'July's data supports this thesis, as household appliances (28.7%) and communication equipment (14.9%) sales grew more slowly than their respective year-to-date growth levels. These beneficiaries will likely continue to outperform for the rest of the year. But without new stimulus, momentum could slow.'
In response, policymakers announced consumer loan subsidies from September, covering up to 50,000 RMB per loan. 'We think that this policy will help on the margins, especially to support consumption categories which may have a reliance on consumer loans, such as autos and home appliances. Reducing the interest rate burden will always be welcome news for households. However, the end impact is unlikely to be a game-changer. The real issue facing Chinese household consumption isn't overly expensive consumer loans, but rather a reluctance to spend amid weak confidence.'
Fixed asset investment (FAI) growth has slowed sharply, reaching 1.6% YoY from 2.8%, driven largely by a slump in real estate investment and weak private sector activity. Song noted: 'Private FAI has now fallen to -1.5% YoY ytd. This is the steepest decline since pandemic-impacted 2020.'
Industrial production remains resilient but is moderating. Value added of industry slowed to 5.7% YoY in July, down from June's 6.8%, though it continues to outperform other sectors. High-performing areas include hi-tech manufacturing (9.3%), autos (8.5%), railway, shipbuilding and aeroplanes (13.7%), and semiconductors (15.0%).
Looking ahead, Song emphasised: 'A more challenging second half of 2025 is to be expected, after first-half growth exceeded most forecasts. The slump in July's data was more pronounced than expected... Attention has largely been on anti-involution policies rather than new stimulus policies in prior months... However, slowing momentum from the past few months may have been a reason for the announcement of a consumer loan subsidy policy this week, as well as more discussions on resuming property market support.'
Chinese policymakers are expected to continue a flexible and supportive approach, aiming to maintain growth around the target of 5% for 2025.
More information:
ING
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