The decline of July activity data in China shows the additional stimulus needed
Chinese economic activity slowed down all boards in July, with retail sales, fixed asset investment, and added value of industry growth all of them reached the lowest level this year. After a strong start, a few months the momentum of cooling shows that the economy may require further policy support
Downward pressure at the property price lasted in July
The 70 Chinese property price index shows that prices continue to decline. From its peak, the price of new homes is now down -10.7%, while the price of the house used has dropped -18.8%.
The price of the new home launched -0.31% month to month, slightly steeper than the decline of -0.27% Mom in June, for the fourth consecutive month of the sharp decline. The price of the house used is down -0.55% of mothers, a slightly smaller decrease compared to Slide Mom -0.61% in June. There are no numbers that might inspire many optimism.
Damage at the city level shows widespread weaknesses. Only 10 out of 70 cities that see the price of new houses stabilize or take, the lowest amount in nine months. Only 2 cities (taiyuan and xining) see the price of used houses stable or taken.
Accelerate the decline in property prices in recent months indicates that further policy support is needed. Considering the high exposure of Chinese households to real estate, building a price trough is one of the most important factors for restoring self -confidence and producing sustainable recovery of consumption. This is very important because domestic demand is targeted to be an increasingly important economic driver. It is difficult to expect consumers to spend with greater confidence if their biggest assets continue to decline in value every month.
The good news: After a few pause periods, we can immediately see more support launched. There are several reports about new efforts for government acquisitions from unsold property. This process has a limited absorption given a strict local government finances and reluctance to make purchases, especially in areas with severe excessive supply.
A steeper price in recent months has reduced the lively optimism since the beginning of the year
Retail sales growth has fallen to the lowest level this year
Retail sales dropped to 3.7%from year to year, down from 4.8%, and came far below the market estimate for a lighter slowdown 4.6%. Reading 3.7% Yoy so far is the weakest for retail sales this year.
Most of the subcategories of softened by the month, with the ongoing performance of the trade-in policy recipient category. We wrote in the data comments last month that we could immediately approach the peak for the encouragement driven by policies for retail sales. JULI’s data supports this thesis, due to household appliances (28.7%) and communication equipment (14.9%) sales grew slower than the growth rate of each year. This beneficiary is likely to continue to surpass over the remaining year. But without a new stimulus, momentum can slow down.
Fortunately, consumption supports remains one of the important goals for Chinese policy makers. Earlier this week, policy makers announced plans to launch consumer loan subsidies for a period of one year, starting in September. Consumers who borrow up to 50k RMB will meet the requirements to have 1% of the interest rates on loans that meet the requirements subsidized by the government. The central government will bear 90% of interest costs, and the remaining local government is 10%.
We think that this policy will help margin, especially to support the category of consumption that may have dependence on consumer loans, such as cars and household appliances. Reducing interest rates will always be the news that is welcomed for the household. However, the final impact is not possible to be a game changer. The real problem faced by Chinese household consumption is not a loan of consumers that are too expensive, but rather the reluctance to spend in the midst of weak trust.
Although the number of July is soft, we hope that policy support must maintain consumption growth near the growth of Mid-Single Digit for this year as a whole.
Retail sales dropped in July amid signs that the trade-in policy encouragement could pass its peak
Investment growth in fixed assets reaches new low obstacles amidst the obstacles from the private sector
Investment growth of fixed assets slowed down to 1.6% yoy ytd in Jan-jul, down from 2.8% yoy ytd, and shorter than estimated to decline to 2.7%. This is the second month of a sharp decline in FAI growth, which is relatively rarely given the indicators reported in the growth of years and are usually vulnerable to smaller fluctuations. Slow down from 3.7% yoy in the first five months of this year to 1.8% in the first seven months showing a sharp slow investment activity in June and July.
Slowing up broad -based investment growth. Considering the decline of property prices, combined with an increase in inventory levels, it is not surprising that real estate investment continues to be the biggest investment barrier, down -12.0% yoy ytd. Fai personally has now fallen to -1.5% yoy ytd. This is the most steep decline since 2020 that was affected by Pandemic. FAI’s manufacturing, which has been a lot of excellence over the past few years in the midst of the demand for increasing Hi-Tech production, has been softened to 6.2% Yoy YTD, the lowest level since 2023.
On a brighter side, at the industrial level, FAI to car manufacturing (21.7%), trains, ships and aircraft manufacturing (29.3%), and utilities (21.5%) remain at high levels.
Many companies have been careful with new investments in the midst of high levels of uncertainty. With many industries also still in excess capacity, US-Chinese trade negotiations seem to support short-term extensions rather than more durable “large bargaining”, and the impulse of “anti-involution” to the ongoing extreme price competition, investment growth can remain soft for some time.
FAI’s growth continues to decline throughout the board
Industrial added value is moderated but continues to outperform
The added value of the Chinese industry slowed down to 5.7% yoy in July, down from the peak of 6.8% in June. This decline is more steep than market expectations. Just like the situation with retail and FAI sales, the industrial added value sees the lowest growth of the-date year. With that, the growth of 5.7% YoY remains respectable and continues to outperform other categories.
Most categories are moderated in the month after June which is far stronger than expected. Manufacturing growth (6.2%) remains solid, with high -tech manufacturing (9.3%) continues to surpass.
With industry, cars (8.5%), trains, shipbuilding, and aircraft (13.7%), and engine and electrical equipment (10.2%) continue to surpass the headline growth easily. Food Industry (3.8%) and drinks (0.1%), along with textiles that depend on exports (1.7%) and non-metal minerals (-0.6%) have become poor performance.
Based on the product, we see that strong growth continues in the semiconductor (15.0%) and new energy vehicles (17.1%). The developing robotics industry is another superior, with industrial robots (24.0%) and service robots (12.8%) both see strong production growth.
External demand resistance has become an important factor for industrial production this year. With the US-China trading ceasefire extended 90 days, and other competitors generally face higher rates than the US since August and so on, the background will suggest that demand can remain relatively stable for most of the remaining 2025.
Industrial added value is moderated but continues to outperform
From challenging up to 2H25 showing policy support is still needed
The second half that is more challenging than 2025 is expected, after the growth of the first half exceeds most of the estimates. The decline data in July is clearer than expected. While extreme weather may have played a role, a broad -based slowdown in July came in a few months of momentum which generally slowed down. This shows that stimulus support is still needed.
Balancing the purpose of short -term growth stability by dealing with long -term problems such as extreme price competition remains a major challenge.
Most of the attention to the anti-involation policy rather than a new stimulus policy in previous months, perhaps as a result of the growth of 1H25 that came stronger than expected. However, slowing the momentum from the last few months may be the reason for the announcement of the consumer loan subsidy policy this week, as well as more discussions about continuing the support of the property market.
Chinese policy makers continue to adopt a flexible and supportive policy attitude, and we hope that more support steps will be announced in the coming months after this new soft patches. Thus, we still think that China will remain on the track to achieve the growth target of “around 5%” this year.
Source: Ing
