China’s August Economy Shows Weak Demand Despite Industrial Growth

China’s economy continued to face headwinds in August as retail sales growth decelerated and property investment slumped deeper, even as industrial output surpassed expectations. The National Bureau of Statistics reported that retail sales increased by only 0.4% year-on-year, slowing from the 0.6% gain seen in July and falling short of the 0.8% rise anticipated by economists in a Reuters poll.

In contrast, industrial production accelerated to a 5.2% annual growth rate, up from 4.5% in July and beating the 4.8% forecast. However, fixed-asset investment in urban areas, which includes infrastructure and property development, contracted by 7.2% over the first eight months of the year. This marks an acceleration in the decline from the 6.7% drop recorded through July, aligning with analyst expectations.

The statistics bureau acknowledged in its release that the adverse effects of the external environment have intensified. It highlighted an “acute” imbalance between robust domestic supply and sluggish demand, noting that certain enterprises continue to struggle with operational challenges. Consequently, the bureau called for enhanced macro-policy adjustments and measures to stimulate domestic consumption, alongside advancements in innovation-led industrial upgrades.

Macroeconomic data indicates that China’s gross domestic product grew at a 4.3% annualized rate in the second quarter, the slowest pace in over three years and a notable miss from the government’s full-year target of 4.5% to 5%. Policymakers have so far opted for incremental stimulus rather than aggressive broad-based easing.

Export resilience has served as a key pillar supporting the economy, driven in part by a global surge in artificial intelligence investment that has boosted demand for Chinese semiconductors and technology hardware. Additionally, China’s extensive oil reserves have provided a buffer against rising global energy prices, allowing the world’s largest crude importer to reduce import volumes.

Employment indicators also showed slight deterioration, with the urban surveyed unemployment rate ticking up to 5.3% from 5.2% in July. Meanwhile, credit expansion failed to meet projections; new bank loans totaled just 60 billion yuan ($8.95 billion), significantly below the 400 billion yuan forecast and down sharply from 590 billion yuan a year earlier. Outstanding loan growth slowed to a record-low 4.9%, as government bond financing was unable to compensate for weak corporate and household borrowing demand.