China's economic slowdown in July has raised concerns about the health of the world's second-largest economy. The data, released at an unusual time, showed a deepening supply-demand imbalance, with retail sales barely growing and investment slumping. This comes after the economy posted its slowest growth since late 2022 in the second quarter, expanding just 4.3% from a year earlier. While robust industrial production and exports have powered headline growth, consumption and private investment have weakened amid a prolonged property downturn and volatile energy prices. The July figures reinforced these concerns, with retail sales growth slowing sharply over the past year and nominal growth easing to just 1.3% in the first half of this year. This is attributed to a government trade-in subsidy program that pulled purchases forward and has since become a drag, as well as higher CPI inflation. Sales growth is expected to stay weak in the second half, leaving full-year growth at about 1.5%. New bank loans issued in July recorded their largest monthly decline on record, further indicating persistent weakness in spending. The jobs picture may be worse than official figures suggest, with a private survey showing China's broad unemployment rate at 10.2% as of July. This is significantly higher than the official figures of around 5%, and more than half of the long-term unemployed are aged 16 to 24. The slump in investment is another major concern, with urban investment declining for the first time in decades last year and deteriorating further this year due to the property downturn and tighter constraints on local governments' borrowing. Factory and construction activity also lost momentum in July, with the official manufacturing purchasing managers' index (PMI) unexpectedly contracting for the first time since February. Despite these challenges, exports remain a bright spot in the cooling economy, with the global AI buildout helping to offset headwinds from the Middle East conflict. However, Beijing's massive trade surplus has become a standing grievance for its trading partners, raising the risk of fresh trade restrictions aimed at forcing a trade rebalancing from Beijing. In conclusion, China's economy is facing a broadening slowdown, with a deepening supply-demand imbalance, weak consumption, and a slump in investment. The government is under pressure to step up support in the second half, but the challenges are significant, and the future is uncertain.
