China's economy loses momentum as industrial output slows
What's the story
China's economic recovery appears to be losing momentum in July, with industrial output growth slowing and retail sales rising less than expected. The National Bureau of Statistics reported a 4.5% year-on-year increase in industrial output for July, down from June's 5.3% and below analysts' forecast of 4.8%. Retail sales also disappointed, rising only 0.6% compared to June's 1% and well below the anticipated 1.5%.
Economic challenges
Extreme weather conditions disrupted economic activity last month
The disappointing figures highlight a continued weakness in household consumption, despite government efforts to stimulate spending through trade-in subsidies for cars, home appliances, and other durable goods.
Extreme weather conditions also disrupted economic activity last month. Three typhoons hit China in July, displacing millions across manufacturing hubs in eastern and southern regions of the country and affecting factory production.
Subsidy impact
Trade-in subsidies boost consumer purchases
China has heavily relied on trade-in subsidies to boost consumer purchases of cars, home appliances, and other durable goods. However, the pace of subsidy distribution slowed again in July.
Citi analysts estimate that average daily sales supported by these subsidies fell to around 6.3 billion yuan ($934.8 million) in July from June's 9 billion yuan.
The slowdown is particularly pronounced in the automobile sector, where auto sales have declined for a 10th consecutive month.
Investment decline
Fixed-asset investment contracts by 6.7%
Fixed-asset investment has contracted by 6.7% in the first seven months of 2026, compared to a 5.7% decline in January-June.
The latest reading is also worse than analysts' expectations of a 6% decline.
Other economic indicators point toward a weak start to Q3, with China's official manufacturing purchasing managers' index unexpectedly slipping into contraction territory in July and export/import growth moderating from June levels.
Trade surplus
China records another monthly trade surplus of over $100 billion
China recorded another monthly trade surplus of over $100 billion in July, taking its full-year surplus to a level that could exceed $1 trillion for the second consecutive year.
The widening trade imbalance has raised alarm bells among major trading partners.
The European Union is considering stricter measures to tackle its trade deficit with China, while the US has imposed new tariffs on Chinese goods.