China’s Economic Engine Sputters: Retail Slump & Industrial Chill Signal Growth Cooldown
China's economic miracle hits a speed bump—retail spending stutters and factory output dips as the world's second-largest economy downshifts.
The Consumer Conundrum
Shoppers aren’t splurging like they used to. Whether it’s tightened belts or crypto portfolios sucking up disposable income, the registers aren’t ringing like before.
Factory Floor Frost
Industrial output—once China’s unstoppable growth engine—is losing steam. Maybe those ‘ghost cities’ finally ran out of appliances to fill.
The Bottom Line
While Beijing’s technocrats scramble to juice the numbers, global markets eye China’s slowdown with the same enthusiasm as a Bitcoin crash—everyone saw it coming, but nobody’s laughing.
China’s Property Slump Hits Consumer Confidence
The property market remains one of the biggest drags on China’s economy. New home prices have dropped for four straight months. Compared to their peak, they are down 10.7%, while used home prices have fallen nearly 19%. Only a handful of cities saw any stability in July. Weak demand and high unsold inventory continue to weigh on developers. Real estate investment plunged 12% so far this year, with residential investment down almost 11%. For most families, property is their main store of wealth. Falling values make households less willing to spend, which hurts retail growth. This cycle of weak property sales and weak consumption has become a key challenge for policymakers. Without a clear floor in prices, a strong recovery in domestic demand looks unlikely.
Retail Weakness Shows Stimulus Limits
Retail sales growth fell sharply in July, missing market forecasts. Even categories boosted by trade-in policies, like household appliances and communication devices, slowed compared to earlier in the year. This suggests that previous incentives may be losing their impact. The government announced a new consumer loan subsidy program starting in September. Borrowers can get a 1% interest rate subsidy on loans up to 50,000 RMB, with most of the cost covered by the central government. While this may help purchases of cars and appliances, the effect will likely be modest. The bigger problem is not expensive credit but low consumer confidence. Policymakers still aim to keep retail growth in the mid-single digits for the year, but momentum will depend on restoring household optimism.
Industry Shows Resilience but Growth Slows
Value added of industry slowed to 5.7% in July, its lowest rate this year. However, several high-tech and advanced manufacturing sectors continued to outperform. New energy vehicles, semiconductors, and robotics all posted double-digit production growth. Industries like autos, shipbuilding, and electrical machinery also stayed strong. These gains were supported by steady external demand and an extended U.S.-China tariff truce. But some export-dependent sectors like textiles and non-metallic minerals underperformed. Manufacturing fixed asset investment cooled to 6.2%, its slowest pace since last year. This suggests companies remain cautious about expansion amid uncertain trade and domestic demand conditions. While the industrial sector is holding up better than retail and property, it is still losing momentum.
More Stimulus Likely as Economy Enters Challenging Phase
The second half of the year is off to a weak start. The July slowdown was broad-based and deeper than expected. Property prices keep sliding, retail sales have lost pace, and private sector investment is falling. The government is expected to roll out more support measures in the coming months. Discussions on buying unsold homes and boosting property market stability are already underway. The new loan subsidy program is part of this push, but more may be needed. Balancing short-term growth with long-term structural reforms remains a tough task. Still, most analysts believe China can hit its 2025 growth target of “around 5%” if fresh stimulus arrives soon. For now, the economy is in a wait-and-see mode, with both households and businesses holding back until confidence returns.
