China’s Economic Momentum Stalls Under Trade and Housing Strain

China’s economy slowed sharply in July, with industrial output rising just 5.7% from a year earlier, the weakest pace in eight months. Retail sales gained only 3.7%, their slowest growth since late 2024, underscoring fading domestic demand. Factory-gate prices fell for a second straight month, reinforcing deflationary signals, while fixed asset investment expanded only 1.6% in the year to date. The data highlight the combined drag of weak consumption, property-sector fragility, and intensifying trade headwinds.

Property Sector Slump Deepens Weakness

The housing market remains a critical pressure point. New home prices slipped 0.3% nationwide, while residential investment dropped 11%, curbing household wealth and confidence. Developers continue to struggle with funding constraints, and efforts to stabilize sales have delivered limited relief. The downturn has rippled across supply chains, weighing on steel, cement, and other inputs, while simultaneously depressing consumer sentiment.

Trade Tensions Limit Relief

Exports climbed 7.2% in July as companies accelerated shipments ahead of tariff deadlines, but the gain failed to offset broader weakness. While Beijing’s temporary trade truce with Washington eased near-term uncertainty, the structural strain from tariffs and slower global demand persists. Economists now see GDP growth slowing to 4.5% in the third quarter and 4.0% in the fourth, below the government’s 5% target. Full-year expansion is expected near 4.6%, with momentum projected to ease further into 2026.

Longer-Term Risks Mount

Beyond cyclical weakness, structural headwinds are becoming more pronounced. Demographic decline, high debt levels, and fading productivity gains threaten China’s longer-term growth model. Urbanization has plateaued, and consumption remains subdued despite repeated stimulus efforts. While targeted investment in high-tech industries continues, broader reforms are seen as essential to restore sustainable momentum. Without them, the risk of entrenched stagnation grows.

Tips for Traders

• Track Chinese output and retail sales for signs of further slowdown or policy-driven rebound

• Watch housing price data and developer trends as leading indicators of consumer sentiment

• Follow deflation signals in CPI and PPI, which can weigh on Asian equities and commodity markets

• Monitor yuan movements, as currency weakness could aid exports but pressure regional peers

• Stay alert to policy measures in housing and consumption, which may spark sector-specific rallies