China’s July economic indicators paint a picture of a stark and worrying short-term slowdown. This plunge casts doubt on the need for new stimulus to spur growth. Retail sales growth decelerated to 3.7% YoY, the slowest advance thus far in 2023. Meanwhile, fixed asset investment (FAI) growth eroded, and major sectors like manufacturing and real estate have been under tremendous duress. Policymakers are understandably reacting with proposals to boost consumer demand, including new loan subsidies that will begin in September.
Overall, July retail sales growth in China is the weakest in years, with the growth rate decelerating to only 3.7% YoY. This figure is a significant drop from previous months and should sound the alarm on consumer sentiment and purchasing power. The retail sector is essential to our overall economic health, but today it, too, is in crisis. Yet as economic uncertainties increase, it begins to lose its upward lift.
Adding to these worries is a sharp slowdown in fixed asset investment. FAI growth through the first seven months of the year has slowed to just 1.6% y/y. That’s down from 2.8% over the same period last year. This decline signals a lack of capital influx into essential infrastructure and production capabilities, which may hinder future economic expansion.
Manufacturing and Real Estate Woes
The reality is that the manufacturing sector is not immune to these economic headwinds. Value added of industry dropped to 5.7% YoY in July, a decline from a peak of 6.8% in June. Further, FAI growth in manufacturing eased to 6.2% YoY year-to-date, marking a new production cycle low since the start of 2023. Together, these indicators point to a manufacturing sector that is facing a new reality of diminished demand and heightened operational headwinds.
One explanation for that is real estate investment is keeping overall investment numbers in the red. It has been experiencing a very worrisome downward trend of -12.0% YOY this year. Tight market conditions and costs associated with building are keeping the property market in a slump. The Realtors’ 70-city composite property price index confirms that property prices proved to be still falling in July. New home prices declined by -0.31% m/m, a little sharper than June’s decline of -0.27%. Used home prices fell 0.55% MoM. That’s an improvement from the decline of 0.61% in June.
The data tells a pretty straightforward story. In July, Taiyuan and Xining were the only two cities where the trend of used home prices stabilized or increased. By contrast, only 10 of the 70 major cities surveyed saw new home prices stabilize or rise. This is the fewest measures counted in nine months.
Consumer Goods Performance
And even in the face of larger economic doom and gloom, some industries have reportedly hung on. Sales of household appliances exploded by a staggering 28.7% YoY in July. Notably, this growth represents a deceleration relative to year-to-date levels earlier in the year. Information and communication technology equipment sales were up 14.9% compared to a year ago in July. Nonetheless, this growth is still a drop relative to their historic performance.
On a brighter, though related, note, output in key advanced manufacturing and knowledge-intensive sectors continued to post solid gains. In July, production of semiconductors was up a whopping 15.0% YOY. At the same time, new energy vehicles saw a stellar jump of 17.1%. In addition, industrial robot production rose 24.0%, as did service robots at 12.8%. These bright spots show that for every industry struggling under the weight of the pandemic, there’s an industry booming and driving our economic activity.
Government Response to Economic Challenges
Last week, Chinese policymakers took the exceptionally rosy step of declaring plans to rollout consumer loan subsidies. These increased subsidies will be available for a one-year period starting this September. In addition, the initiative is aimed at encouraging consumption and helping households that are struggling financially during the economic downturn.
The decision to implement these subsidies reflects an acknowledgment of the pressing need to bolster consumer confidence and spending power within the economy. Their goal is to increase consumption by goods and services by providing direct stimulus payments to individuals and families. This strategy is meant to jumpstart demand and kickstart an economic recovery.