BEIJING — China’s retail sales grew more than expected in July, while industrial production missed forecasts, the National Bureau of Statistics said Thursday.
Retail sales rose by 2.7% in July from a year ago, beating forecasts of 2.6% growth according to a Reuters poll.
Excluding cars, retail sales picked up to 3.6% year-on-year in July, from 3% in June, pointed out Bruce Pang, chief economist and head of research for Greater China at JLL.
Consumer spending helped offset sluggish investment in July, Pang said. He added it’s important to see whether retail sales in August and September pick up enough to make consumption a major contributor to growth instead of investment.
Industrial production rose by 5.1% in July from a year ago, below the poll’s forecast of 5.2%.
Fixed asset investment for the first seven months of the year rose by 3.6%, below the 3.9% growth analysts had predicted. Within fixed asset investment, the drag from real estate worsened, down by 10.2% on a year-to-date basis as of July, versus a drop of 10.1% as of June.
The infrastructure and manufacturing components also slowed their growth for the year as of July versus June.
The miss in fixed asset investment suggests “the drag from adverse weather conditions and still-depressed property investment more than offset the boost from ongoing piecemeal policy easing,” Goldman Sachs analysts said in a report.
At least 25 major floods have hit China this year as of Aug. 1, the highest number since record-keeping began in 1998, according to the Ministry of Water Resources. Major cities such as Shanghai have also reported record-breaking heat waves this summer.
The urban unemployment rate ticked higher to 5.2% in July versus 5% in June.
“Pains are caused while old growth drivers are replaced by new ones,” the statistics bureau said in an English-language version of the release. It noted an “adverse impact” from the external environment and insufficient domestic demand.
While Beijing has in the last few years noted the lack of domestic demand, top leaders at late July’s Politburo meeting specifically stated that consumption should be the focus of expanding such demand.
However, Beijing has not significantly increased stimulus plans beyond an expanded trade-in and equipment upgrade policy.
Goldman Sachs said, “We believe the urgency for incremental policy easing is increasing to counteract subdued domestic demand; otherwise, the ‘around 5%’ full-year growth target might be at risk given a high comparison base for GDP in Q3 last year.”
At the highly anticipated Third Plenum policy meetings in mid-July, Chinese authorities affirmed the country would work to achieve its annual growth target of around 5%. They also emphasized longer-term goals to develop advanced technology and other “new growth drivers.”
The statistics bureau said that production of new energy vehicles, integrated circuits and 3D printing devices each surged by more than 25% in July from a year ago.
Despite the overall improvement in retail sales, pockets pointed to continued weakness.
Restaurant revenue grew by 3% in July from a year ago, the slowest since China ended its Covid-19 restrictions in late 2022, pointed out Larry Hu, chief China economist at Macquarie.
He expects growth could improve in the fourth quarter as China increases support on the fiscal and housing front.
Household appliances and furniture, two categories sensitive to the real estate market, saw retail sales decline slightly in July from a year ago.
Real estate drag persists
Official house price data released separately Thursday indicated a moderation in prices to a 7.6% month-on-month, seasonally adjusted annualized decline in July, according to Goldman Sachs analysis.
However, those figures refer to new home sales, while prices on the secondary market have fallen between 5% to 20% over the past year, Goldman analysts said, citing official and third-party data.
Floor space of new residential buildings sold in the first seven months of this year dropped by 18.6%, a modest improvement from a 19% decline for the year as of June.
Statistics bureau spokesperson Liu Aihua said China’s real estate sector remains in a period of adjustment. She attributed the rise in the urban jobless rate in July to graduation season, while acknowledging pressure on employment overall — including structural challenges in which businesses cannot find suitable workers.
The official urban unemployment rate for people ages 16 to 24 and not in school was 13.2% in June. Figures for July are expected in coming days.
Liu also noted the impact from severe weather on July’s figures, while tourism remained robust.
Rail trips between July 1 and Aug. 12 rose by 6.1% from a year ago to 605 million passenger trips, according to China Railway, the nation’s main railway operator and state-owned enterprise. That’s on pace to slightly exceed last year’s record high of 830 million rail trips for July and August, according to CNBC calculations of official data
Sports and recreation equipment saw sales recover from a slump in June with an increase of 10.7% in July.
Online sales of physical goods rose by 14% in July from a year ago, reversing declines or no growth earlier in the year, according to CNBC calculations of official data.
Other data for July released in the last two weeks have indicated consumer demand remains sluggish.
China’s consumer prices rose by a more-than-expected 0.5% in July from a year ago, boosted by a surge in pork prices. When stripping out food and energy prices, the core CPI rose by 0.4%, down from 0.6% the prior month.
The producer price index for July fell by 0.8% from a year ago. That was slightly less than the 0.9% forecast decline, and unchanged from June’s 0.8% drop.
Liu said she expected the producer price index to narrow its decline in the second half of the year, primarily due to reduced drags on prices.
Trade data for July showed imports rose by a faster-than-expected 7.2% from a year ago, while export growth of 7% was below forecasts.
Second-quarter GDP grew by a disappointing 4.7% from a year ago.
China’s economy faces challenges not only from the external environment but also from structural transformation — “pain that must be experienced in the process of pushing for high-quality development,” an official from the National Development and Reform Commission, China’s economic planning agency, told reporters earlier this month. That’s according to a CNBC translation of the Mandarin-language remarks.
— CNBC’s Sonia Heng contributed to this report.
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