China’s July economy lags due to tariffs, sluggish property market
In July, indicators of China’s economic performance revealed a deceleration, with factory output and retail sales experiencing a downturn, alongside a continued decline in housing prices, as reported in the data released on Friday. Uncertainty regarding tariffs on exports to the United States continues to cast a shadow over the world’s second-largest economy. From January to July, manufacturing equipment and other fixed asset investments grew 1.6%, compared to 2.8% in the first half of the year.
This follows President Donald Trump’s decision to extend a pause in significant increases in import duties for an additional 90 days, starting Monday, after an initial 90-day pause that commenced in May. As officials endeavored to establish a more comprehensive trade agreement, China disclosed that its exports experienced a year-on-year increase of 7.2 percent in July, while imports expanded at the most rapid rate in a year, as businesses sought to capitalize on the temporary cessation of hostilities in Trump’s trade conflict with Beijing.
However, this also indicates a diminished baseline for comparison, as manufacturers have curtailed investments, hiring, and production while they await further developments. Chinese manufacturers have increased their shipments to Southeast Asia, Africa, and other regions as a strategy to mitigate the impact of lost business in the US. Nonetheless, the annual growth rate of industrial output declined to 5.7 percent in July, down from 6.8 percent in June, according to the National Bureau of Statistics. Investments in factory equipment and other fixed assets experienced a modest increase of 1.6 percent during the January-July period, in contrast to a more robust growth rate of 2.8 percent observed in the first half of the year.
Property investments experienced a significant decline of 12 per cent during the initial seven months of the year, while residential housing investment saw a nearly 11 per cent decrease. Prices for newly constructed homes in major urban centers decreased by 1.1 percent, reflecting the ongoing challenges faced by the property sector. The downturn in the housing market coincided with the onset of the COVID-19 pandemic, undermining a key engine of economic expansion and leading to numerous defaults among developers on their financial obligations. The crisis had widespread repercussions across the economy, leading to job losses for millions of individuals. The government has endeavored to guarantee that the majority of housing financed is constructed; however, sales continue to be sluggish despite various initiatives aimed at encouraging families to re-enter the market.
The substantial concentration of wealth in real estate among Chinese households has rendered the sluggish housing market a significant impediment to consumer expenditure. In July, retail sales experienced a 3.7 percent increase, marking the slowest growth rate in seven months, a decline from the 4.8 percent rise observed in June. The unemployment rate increased to 5.2 percent, up from 5 percent, coinciding with the influx of university graduates entering the job market in search of employment opportunities. In July, consumer prices experienced a month-over-month increase of 0.4 percent; however, wholesale prices declined by 3.6 percent compared to the same month last year, reflecting a sign of subdued demand in the economy.
