China's key economic indicators have fallen short of expectations for two straight months in the second half. The industrial production growth rate, a gauge of manufacturing trends, was the lowest in a year, and the retail sales growth rate, which points to domestic demand, dropped to a nine-month low. Analysts say additional fiscal support is needed to achieve the government's "5% annual growth" target.
According to China's National Bureau of Statistics on the 15th, industrial production last month rose just 5.2% from a year earlier. That was down from July's 5.7% and the lowest since Aug. 2024, marking a one-year low. Over the same period, last month's retail sales increased 3.4% year over year, missing the market consensus of 3.9% compiled by Reuters and slowing from July's 3.7%. It was the lowest growth rate since Nov. 2024.
Investment also worsened. Cumulative fixed assets investment for January–August rose 0.5%, a sharp slowdown from the January–July cumulative figure of 1.6%. It also came in below the market forecast of 1.4%. It was the worst reading since 2020, when the COVID-19 pandemic spread.
As dwellings prices fell, real estate investment in January–August dropped 12.9% from a year earlier, worsening from the January–July cumulative decline of 12%. Based on data from the statistics bureau, Reuters estimated that new dwellings prices in August fell 0.3% from the previous month and 2.5% from a year earlier. Reuters said, "The housing market continues its sluggish pattern since May 2023," adding, "The housing market still appears to be a drag on growth."
The urban unemployment rate in August was 5.3%, up slightly from 5.2% the previous month. On a cumulative basis for January–August, the average urban unemployment rate was 5.2%.
Regarding the August economic indicators, the statistics bureau said, "Thanks to the effects of macro policies, the overall trajectory remained stable, and there was progress in structural transformation and nurturing new growth drivers." It added, "However, uncertainties in the external environment remain significant, and the domestic economy also faces a variety of risks and challenges. Going forward, we should maintain the stance of 'development amid stability' and step up reform and opening to promote stable economic development."
Major foreign media focused on the fact that production, consumption, and investment all contracted in July–August in the second half, as the real estate crisis drags on. With the real estate slump persisting for more than five years since the "Evergrande incident," consumption has weakened, unsettling corporations and spilling over into the job market. Meanwhile, the temporary boost to exports from concerns over a tariff war with the United States also appears to have run its course, and uncertainty in U.S.-China negotiations has not eased, leading analysts to view additional stimulus as essential.
Lynn Song, chief economist at ING, told Reuters, "Thanks to robust indicators early in the year, achieving this year's target (5% growth) is still possible, but additional stimulus may be needed to ensure growth similar to this time last year through year-end." Song added, "It is too early to judge the effect of consumer loan subsidies taking effect from September, but given the overall slowdown, more policy support is likely needed," noting, "There is a high chance of cuts to bank interest rates and the reserve requirement ratio in the coming weeks."
According to Reuters, the National Development and Reform Commission of China (NDRC) previously said it would make full use of fiscal and monetary policy and improve policy tools to achieve the 5% annual growth target. To that end, policymakers are expected to roll out new financial measures in the second half.