Disappointing economic data in August suggests China's growth momentum continues to weaken, strengthening the case for new stimulus measures before the end of the year, according to ING's Chief Economist for Greater China, Lynn Song.
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Retail sales grew just 3.4% year-on-year – the slowest since November 2024 – while industrial production rose 5.2%, marking a 12-month low. Fixed-asset investment (FAI) increased by only 0.5% year-to-date, the weakest level since 2020, dragged down by soft private sector investment and a continued slump in real estate.
Song notes: "Weak confidence remains the biggest drag on domestic economy." August property data showed new home prices falling by -0.3% month-on-month and used homes down -0.58% MoM. While 13 cities recorded rising new home prices, only one reported growth in used-home values, highlighting ongoing pressure on homeowners. Excluding real estate, FAI was a comparatively robust 4.2% YoY ytd, but private FAI fell to -2.3% YoY ytd, the lowest since 2020.
Soft consumer sentiment is also affecting retail, with previous outperformers such as household appliances (+14.2%) and communication appliances (+7.3%) showing weaker growth. A consumer loan subsidy programme, covering 1% of interest costs for loans up to RMB 50,000, was introduced in September to support retail sales, though ING expects only modest impact.
On a positive note, external demand remains resilient. August trade exceeded forecasts, with a 4.4% YoY gain despite US export contractions. Industrial production has benefited from strong growth in hi-tech manufacturing (+9.3%), rail, ships, and aeroplanes (+12.0%), autos (+8.4%) and computers (+9.9%).
Song concludes: "Given the slowdown of the past few months, we expect a strong case for additional short-term stimulus efforts. We continue to see a high possibility for another 10bp rate cut and 50bp reserve-requirement-ratio cut in the coming weeks."
While a strong first half of 2025 keeps annual growth targets within reach, additional policy support is likely needed to ensure a strong finish to the year.
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