China's economy shows signs of strain in July, retail sales lose momentum

China's retail sales rose by 3.7 per cent year-on-year in July, slowing from 4.8 per cent in June, based on figures released by the National Bureau of Statistics

China’s economy, after six months of steady growth, showed renewed signs of strain in July as momentum weakened across key sectors, weighed down by the prolonged property slump and mounting global uncertainties.

 

According to the South China Morning Post (SCMP), headline indicators such as retail sales and industrial output slowed in July. The report said that China’s retail sales increased by 3.7 per cent year-on-year in July, slowing from 4.8 per cent in June, based on figures released by the National Bureau of Statistics. Industrial output also lost momentum, expanding 5.7 per cent in July, compared with 6.8 per cent in the previous month.

 

 

However, the report said that despite weaker headline numbers, analysts believe actual industrial activity could be stronger, with firms relying more on existing production capacity instead of investing in new facilities. 

 

The SCMP further highlighted the property sector’s continuing weakness. Property investment fell 12 per cent between January and July, worsening from an 11.2 per cent drop in the first half of the year.

Growing internal competition

An intensifying competition across key industries in China has been squeezing profit margins, a phenomenon described as “involution”, a cycle where firms work harder, cut prices, or expand output, but without expanding gains in productivity or profitability. Beijing has been stepping up efforts to curb excess supply, the report said.

 

As reported earlier by Business Standard, manufacturers in China’s electric vehicle sector have been caught in relentless price wars, slashing rates to outpace rivals. This race to the bottom has not only eaten into earnings but also drawn criticism from trading partners concerned about its spillover effects on global markets.

An uneasy calm in trade tensions

Trade tensions between China and the US have been fluctuating over the last few months. While the situation has eased after US President Donald Trump announced a second 90-day pause on tariffs, the two countries were locked in a heated tariff war earlier this year.

 

In April, China raised its levies on US goods to 125 per cent after Trump hiked tariffs on Chinese imports to 145 per cent. A month later, Beijing and Washington reached a mutual agreement on a 90-day pause.

 

Under the temporary truce, US tariffs on Chinese goods were to fall from 145 per cent to 30 per cent, while China’s tariffs on American goods were to drop from 125 per cent to 10 per cent. This truce was extended for another 90 days on August 11.

After India tariffs focus shifts to China

Trump recently imposed a 25 per cent tariff on India, along with an additional 25 per cent penalty for purchasing oil from Russia. Like India, China is also a major importer of Russian crude. The secondary tariffs on India have shifted attention to Beijing, raising questions over whether China could face similar penalties in the future.