A broad array of Chinese data on Tuesday showed the economy slowed further last month, intensifying pressure on already faltering growth and prompting authorities to cut key policy rates to shore up activity.
Less than an hour before the release of a batch of July data, China's central bank unexpectedly cut key policy rates for the second time in three months, underlining the rapid loss of the post-COVID economic rebound that has shaken global financial markets.
Industrial output grew 3.7% from a year earlier, slowing from the 4.4% pace seen in June, data released by the National Bureau of Statistics (NBS) showed on Tuesday. It was below expectations for a 4.4% increase in a Reuters poll of analysts.
Retail sales, a gauge of consumption, rose 2.5%, down from a 3.1% increase in June and missed analysts' forecasts of 4.5% growth despite the summer travel season. It was the slowest growth since December 2022.
"All the main activity indicators undershot consensus expectations in July, with most either stagnant or barely expanding in month on month terms," said Julian Evans-Pritchard, economist at Capital Economics.
With financial troubles at real estate developers such as Country Garden likely to drag on the housing market in the near-term, he warned that the economy could slip into a recession unless policy support is ramped up soon.
Following the rate cuts, China's major state-owned banks were seen selling U.S. dollars and buying yuan in a bid to stem rapid declines in the currency, three people with direct knowledge of the matter said. Sovereign bond yields fell to three-year lows, but benchmark stock indexes were only slightly weaker, possibly on expectations of more stimulus.
Policymakers last month released a batch of stimulus measures, from boosting auto and home appliances consumption, relaxing some property restrictions to pledging support to the private sector, as a post-COVID rebound lost steam since the second quarter.
However, the persistent drag in the property sector, mounting local government debt pressure, high youth jobless rate and cooling foreign demand continue to be major impediments to fostering a sustainable economic revival.
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Tuesday's figures suggest the broader economy remained underpowered last month and come on top of a batch of gloomy data over the past week including disappointing trade and consumer price numbers as well as record-low credit growth that underline the need for policymakers to continue to provide more support measures.
"Today's data shows how difficult it is for China's economy to sail against the wind, with challenges from almost all dimensions and efficient policy support from few fronts," said Bruce Pang, chief economist at Jones Lang Lasalle.
Other data on Tuesday showed fixed asset investment expanded 3.4% in the first seven months of 2023 from the same period a year earlier, versus expectations for a 3.8% rise. It grew 3.8% in the January-June period.
Investment in the property sector tumbled 8.5% year-on-year in January-July, after shrinking 7.9% in January-June, extending its fall for the 17th consecutive month.
Demand for the property sector, once a pillar of economic growth, has remained weak in recent weeks. The Politburo, a top decision-making body of the ruling Communist Party, said last month it is necessary to adapt to significant changes in market supply and demand and optimise property policies in a timely manner.
The nationwide survey-based jobless rate climbed slightly to 5.3% from 5.2% in June.
After the youth jobless rate rose to record high of 21.3% in June, NBS spokesperson Fu Linghui said at Tuesday's press conference the bureau will suspend publishing the survey-based jobless rate for the 16-24 years old from August, adding China will further improve its employment statistics.
($1 = 7.2838 Chinese yuan renminbi)
