China's economic slowdown worsened in July, with industrial production expanding by a lower-than-expected 4.5% year-on-year, missing estimates for the first time in three months, according to data released by the National Bureau of Statistics on Monday. While output of electronic equipment surged by over 19%, this tech boom has largely failed to offset broader weakness, particularly in sectors untouched by the global AI buildout. This lackluster domestic demand, coupled with disruptions from extreme weather events like typhoons causing heavy rainfall and flooding, has contributed to the overall economic deceleration.
In response to the deepening slowdown, China is mobilizing a 10.9 trillion yuan ($1.6 trillion) housing provident fund to stimulate housing-related consumption. Starting next month, a revised regulation will allow residents to withdraw savings from this fund for significant spending, including renovations, and will ease restrictions on using these savings for rent payments. This initiative represents the first major policy response after the economic slowdown became more pronounced in July, signaling an effort to boost consumer spending and stabilize the property market.
Premier Li Qiang has called for intensified support measures, urging officials to maximize the effectiveness of existing policies and introduce new, practical ones to meet annual economic and social development targets. The July data revealed that industrial output, consumption, and investment all softened more than anticipated, leading economists to estimate that GDP growth has likely fallen below the government's annual target of 4.5% to 5%. Analysts from institutions like BNP Paribas SA and Macquarie Group suggest growth is running below the lower end of this target range, with some, like Goldman Sachs Group Inc. and Citigroup Inc., questioning whether a third-quarter pickup will occur. Despite the urgency, analysts do not anticipate an immediate flood of fresh stimulus, expecting instead a faster implementation of current policies and a calibrated approach to additional easing if needed to achieve the annual growth goal. The government plans to accelerate bond issuance, expedite deployment of government funding, and provide more support for investment in emerging industries and new infrastructure, along with utilizing an 800 billion yuan quasi-fiscal policy bank financing instrument.
