BEIJING -- As China prepares to enter a potential long battle with the Trump administration over tariffs and technology, statistics announced on Tuesday indicated an economy that was far from strong.
Consumer spending and investment both slowed in July, likely spurring the administration of President Xi Jinping to propose measures to prop up the economy.
Retail sales of consumer goods grew 8.8% on the year in July, 0.2 percentage point less than in June, the National Bureau of Statistics said. But the top 50 retailers flagged, with a 3.9% decrease in July sales, according to data compiled by an industry group.
Chinese authorities had previously said that consumption growth in May and June had taken a 1.5- to 2-point hit from auto buyers who were waiting for tariffs on imported cars to drop in July. But car sales continued their decline in July, signaling a weakness in appetite. It also exposed the fact that tax subsidies that existed until last year only served to bring demand forward in time rather than ignite nationwide consumption.
Even as the government tries to encourage consumption, there are signs that the Chinese people are more interested in tightening their purse strings.
Surging housing prices are a key factor. Online forums are filled with people lamenting that mortgages eat up all their earnings. The debt-to-income ratio for Chinese individuals hit 107% at the end of 2017, according to the Shanghai University of Finance and Economics, now nearly on par with the U.S. Many also lost money from a string of bankruptcies among online financial operations.
Investment in fixed assets also lost momentum, increasing 5.5% on the year in the January-July period, 0.5 point less than in January-June alone. This marks the slowest growth rate since authorities began tracking the figure in 1995.
Investment in infrastructure, like roads and airports, used to be a major driver, growing roughly 20% annually until 2017. But the figure increased just 5.7% in January-July, 1.6 point less than in January-June. As regional governments and state-run banks get serious about reducing their debt, they are becoming less willing to fund infrastructure projects with low returns.
Companies and individuals raised 1 trillion yuan ($145 billion) in funds in July, down from June and from a year earlier. While bank lending increased significantly, repayments topped new borrowing by about 500 billion yuan in the shadow banking sector, which often funds risky projects that mainstream institutions refuse to touch.
Total exports increased 12% on the year in July, remaining strong despite the escalating trade war with the U.S. But certain areas and sectors are starting to feel the heat. The production of new robots, which grew 35% in May, increased just 7% in June and 6% in July, probably due to a 25% tariff imposed by the U.S. starting last month. The city of Shenzhen also suffered an 11% drop in exports in April-June.
Unemployment in China's biggest 31 cities rose 0.3 point in July to 5%, the highest figure since last December. The statistics bureau linked the rise to college students graduating and looking for jobs, but the trade war could play a role.
For now, the Chinese government's biggest economic focus seems to be boosting infrastructure investment. But the country's problem with excessive debt, which Beijing is now trying so hard to address, was caused by a 4 trillion yuan stimulus package launched in the aftermath of the 2008 financial crisis. "We should not have a repeat of 2008, when the government responded by hastily throwing money around," said Peking University professor Huang Yiping.