China Macro - Another month of weak data

China’s activity data for August published this morning came in weaker than expected and pointed to a further cooling of growth momentum. Like in the previous month, the biggest disappointment came from fixed asset investment, with year-to-date growth in January-August dropping sharper than expected to 0.5% y/y ytd (Jan-July: 1.6%, consensus: 1.5%). That marked the weakest growth rate since the initial Covid-19 shock in 2020. While the weak annual number also reflects base effects from a year ago, in monthly terms fixed investment has contracted for three months in a row now. A key factor behind this broad investment slowdown is the government’s campaign against excessive competition and overcapacity. Looking at sectoral developments, manufacturing and infrastructure investment slowed to five-year lows of 5.1% and 2.0% y/y in January-August, respectively, while the annual contraction in property investment deepened (-13% y/y ytd).

Other macro data also point to a slowdown in growth momentum

Other August data also pointed to a slowdown. Industrial production slowed to 5.2% y/y (July: 5.7%, consensus: 5.6%), the lowest annual growth pace in a year, in line with the slowdown in annual export growth reported last week. In monthly terms, industrial production growth was stable at 0.4% q/q. On the demand side, retail sales growth slowed to 3.4% y/y (July: 3.7%, consensus: 3.8%), the weakest reading since November 2024. In monthly terms, retail sales was positive again in August at 0.2% m/m s.a., after two months of negative m/m growth. Meanwhile, residential property sales fell even further into negative territory, to -7.0% y/y ytd (Jan-July: -6.2%). The unemployment rate picked up to a six-month high of 5.3%.

All this adds to policymakers’ sense of urgency to add stimulus to safeguard growth

As we wrote in our August Global Monthly, China’s GDP growth was remarkably resilient in the first half of 2025 (at 5.3% y/y) during the start of the trade war with the US – with export rerouting and diversification offsetting the impact of a drop in exports to the US, helped by favourable inflation and exchange rate developments. However, the July and August data clearly point to a slowdown in overall growth momentum. We expect annual GDP growth to slow significantly in the second half of this year, partly reflecting base effects from last year (with Beijing stepping up fiscal stimulus in the autumn of 2024). The weakening of activity data in recent months will likely add to policymakers’ sense of urgency, and we still expect Beijing to add further targeted fiscal support and piecemeal monetary easing aimed at stabilising the property sector and supporting domestic demand. However, this is likely to be more about limiting the downside rather than sparking a ‘new boom’.