The Chinese economy entered the second half of the year with weaker momentum, after July data showed a slowdown in industrial production and a greater-than-expected weakness in retail sales and investment, in parallel with the continued stagnation of the real estate market. These indicators bring to the fore the problem of unbalanced growth in the second largest economy in the world, as exports and factories linked to external demand continue to support activity, while domestic consumption and real estate investment remain the weakest link.
Data from the National Bureau of Statistics showed on Monday that industrial production grew 4.5 percent year-on-year in July, slowing from 5.3 percent in June, and lower than analysts’ expectations of 4.8 percent.
Economists believe that part of this weakness is related to exceptional climatic factors, after three hurricanes struck industrial areas in eastern and southern China during the month, forcing the authorities to move millions of people. But the slowdown cannot be explained by weather alone; The data coincides with broader weakness in demand and investment.
Xu Tianchen, chief economist at the Economist Intelligence Unit, said that the poor performance is partly due to the ineffective use of the tools already available, noting that fiscal spending has been delayed, and that the data represents a call for officials to accelerate approved spending instead of waiting for new stimulus packages.
He added that the sharp contraction in investment deserves special attention from Beijing. Because the continuation of this trend threatens to weaken growth further in the coming months.
Indeed, investment in fixed assets contracted by 6.7 percent during the first seven months of 2026, compared to expectations for a decline of only 6 percent, and after a decline of 5.7 percent in the period from January to June.
Fu Linghui, spokesman for the National Bureau of Statistics, said authorities will strengthen counter-cyclical adjustments to support domestic demand, a sign that Beijing is aware of expanding pressures, even if it is still avoiding announcing a broad stimulus package.
• Consumption remains the weakest link
Retail sales data shows the extent of the problem more clearly. Sales rose just 0.6 percent in July, slowing from 1 percent in June, and well below market expectations of 1.5 percent, despite the summer holiday season that usually supports tourism and spending.
The government relies in part on replacement programs for old cars and household appliances to stimulate demand for durable goods, but the effect of these tools is beginning to weaken. Citibank analysts said average daily sales linked to the subsidies fell to 6.3 billion yuan in July, from 9 billion yuan in June.
Car sales also declined for the tenth month in a row, albeit at a slower pace. This reflects the contradiction between the weakness of the domestic market and the strong expansion of Chinese auto companies abroad.
Weak consumption makes it more difficult to address the underlying problem of high rates of cautious saving among families, especially in light of uncertainty about the labor market, income, and the decline in real estate prices.
• The property continues to press
The housing sector remained one of the most prominent sources of weakness. New home prices fell 0.1 percent in July compared to the previous month, the same rate of decline recorded in June. On an annual basis, prices fell 3.2 percent, compared to a 3.3 percent decline in the previous month.
Although the pace of the annual decline has improved slightly, the data do not indicate a sustainable recovery. Real estate sales, investments, and new construction project starts declined at a faster pace during the first seven months of the year.
The importance of the real estate market lies in its direct connection to household wealth. Economists estimate that about 52 percent of Chinese household wealth is still tied to real estate. This means that lower house prices affect consumers' confidence and willingness to spend.
Even major cities, which had shown signs of improvement earlier, have lost some momentum. New home prices in first-tier cities stabilized in July after rising 0.1 percent in June, while they fell by 0.1 percent in second-tier cities and 0.3 percent in third-tier cities.
In the existing home market, prices in first-tier cities rose just 0.2 percent month-on-month, compared to 0.3 percent in June, while declines continued in smaller cities.
In early August, Beijing eased restrictions on purchasing homes, allowing a larger number of families to purchase in central areas, in addition to increasing mortgage limits through the Housing Savings Fund, but these measures have not yet changed the general trend.
• Exports bear the burden
Amid this internal weakness, exports continue to play a pivotal role in keeping the economy on a growth path. Export and import growth remained in the double digits despite their slowdown from June, while China recorded a trade surplus of more than $100 billion for the second month in a row, with expectations that the annual surplus will exceed $1 trillion for the second year.
Chinese factories benefit from global demand associated with artificial intelligence infrastructure, semiconductors, and advanced equipment; Which provides strong support to the manufacturing sector.
But this increasing dependence on the outside creates new risks. The European Union is considering tougher measures to address the trade deficit with China, while the United States continues to impose new tariffs on Chinese goods.
Thus, China appears to be facing a delicate equation: with strong exports that give the economy room to breathe, but weak consumption, real estate, and investment make growth vulnerable to any external shock. With gross domestic product slowing to 4.3 percent in the second quarter, the lowest level in more than three years, pressure is mounting on Beijing to accelerate fiscal spending and stimulate domestic demand, even if it remains wary of launching a new massive package.
The central question for the next stage is whether current policies will succeed in transforming abundant production and liquidity into actual demand within the economy, or will China continue to rely on foreign markets as the most important driver of growth?
Oil prices are sideways, due to the lack of progress in diplomatic efforts to resolve tensions in the Middle East, while global supply shortages limited gains. While prices search for new news.
Brent crude futures rose 27 cents, or 0.31 percent, to reach $88.79 by 08:06 GMT, after hitting its highest level during the session at $89.40. On the other hand, US West Texas Intermediate crude futures fell 24 cents, or 0.29 percent, to reach $82.16 per barrel.
The two crude oil prices recorded gains of more than 5 percent last week, after attacks targeted tankers operated by the Abu Dhabi National Oil Company (ADNOC) in the Strait of Hormuz, and a refinery belonging to Aramco.
But Bjarne Schildrup of SEB Bank's research department said prices were unlikely to rise significantly unless the flow of crude oil through the Strait of Hormuz stopped, or the Bab al-Mandab Strait was closed.
Schildrup added, according to Reuters, that prices are currently trading near $90, as traders weigh the risks of worsening unrest and supply shortages, and the possibility of reaching a solution that reopens the Strait of Hormuz and leads to a sharp decline in oil prices.
Over the weekend, Iranian Foreign Minister Abbas Araqchi stated that Iran had not decided to resume talks with the United States, while US President Donald Trump urged Americans to accept a slight rise in gasoline prices in light of the continuing conflict.
Iranian Foreign Ministry spokesman, Ismail Baghaei, said that the talks with Oman are continuing and will take a long time due to the complexity of the issue, the involvement of multiple actors, and countries seeking to undermine the process.
Priyanka Sachdeva, head of market insights at Philip Nova in Singapore, also stated that she does not see much room for prices to rise, “unless we get clear evidence of renewed aggression in the Strait of Hormuz, in particular physical damage to oil tankers, or oil infrastructure.”
Data issued on Monday showed a slowdown in shipping traffic through the Strait of Hormuz over the weekend, following attacks targeting oil tankers.
Ship-tracking data from Kpler showed five cargo-laden ships crossing the strait on Saturday, while no registered ships crossed the strait on Sunday, compared to 31 ships the previous weekend.
ANZ Bank said in a note: “Gulf exports witnessed a slight recovery despite the continued attacks, while more ships were reported to have crossed the Strait of Hormuz without transponders.”
Before the US-Israeli attacks on Iran began in late February, about a fifth of the world's oil and liquefied natural gas supplies passed through the Strait of Hormuz.
