After a comprehensive decline in June, economic data in July showed some improvement, with a rebound in consumption growth, but industry and investment continued to slow down, and the economy faced issues such as insufficient domestic effective demand and the pain of new and old momentum conversion.

Data released by the National Bureau of Statistics on August 15 showed that in July, the total retail sales of consumer goods grew by 2.7% year-on-year, accelerating by 0.7 percentage points compared to the previous month; the value added of the industrial sector above designated size grew by 5.1%, slowing down by 0.2 percentage points compared to the previous month. From January to July, the national fixed asset investment increased by 3.6% year-on-year, with the growth rate falling by 0.3 percentage points compared to the first six months.

Liu Aihua, spokesperson of the National Bureau of Statistics, said at a press conference held by the State Council Information Office on the same day, that looking at the main economic indicators in July, in the face of a complex and severe domestic and international environment, as well as short-term factors such as heavy rain, floods, and extreme high temperatures, the production and demand continued to recover, employment and prices were generally stable, new momentum was cultivated and strengthened, and the economic operation continued the overall stable and progressive development trend.

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Since July, policies to stabilize growth have been implemented intensively. Many experts analyzed that the "supply strong, demand weak" characteristic in the macroeconomy in July is still quite obvious, mainly due to the weak internal growth momentum of the economy represented by residents' consumption and private investment under the continuous adjustment of the real estate industry. With the implementation of policies to stabilize growth, there is an upward trend in the growth momentum of the economy in August.

Consumption growth rebounded from a low level

With the continuous effect of policies to promote consumption, the growth of retail sales of goods has accelerated, and the potential of service consumption continues to be released, and the growth rate of social retail sales has rebounded. In July, the total retail sales of consumer goods was 377.57 billion yuan, a year-on-year increase of 2.7%, accelerating by 0.7 percentage points compared to the previous month; a month-on-month increase of 0.35%.

Driven by new business forms such as live e-commerce and social e-commerce, from January to July, the online retail sales of physical goods grew by 8.7% year-on-year, 5.2 percentage points higher than the total social retail sales; accounting for 25.6% of the total social retail sales, the proportion increased by 0.3 percentage points compared to the first half of the year.

Service consumption also maintained a relatively fast growth. From January to July, the cumulative growth rate of service retail sales was 7.2% year-on-year, 4.1 percentage points higher than the retail sales of goods during the same period. Driven by the peak season of summer tourism, the consumption of transportation services, tourism consulting and rental services, and cultural and sports leisure services grew rapidly.

Wen Bin, Chief Economist of Minsheng Bank, pointed out that the main reason for the acceleration of consumption growth in July was that with the in-depth implementation of the "old for new" action for consumer goods, the demand for the renewal of automobiles, home appliances, and home decoration consumer goods was gradually released, coupled with the active summer travel activities of residents, driving the entertainment industry to be hot. In addition, the transaction volume of the real estate market has increased in the past two months, which is also conducive to the improvement of residential consumption.

However, Wang Qing, Chief Macro Analyst of Dongfang Jincheng, said to First Financial that the consumption growth rate in July continued to be at a relatively low level, indicating that the momentum of residents' consumption is weak; the month-on-month growth of social retail sales in July was 0.35%, significantly lower than the seasonal level. One of the main reasons behind this is the impact of the epidemic scar effect and the adjustment of the real estate market on residents' consumption confidence. According to the latest data from the National Bureau of Statistics, the consumer confidence index in June was 86.2, down 0.2 from the previous month, and has been declining for three consecutive months, significantly lower than the median level of 100. In addition, the growth rate of urban residents' income in the second quarter was 3.7%, down 1.6 percentage points from the previous quarter, which will also have a certain adverse impact on residents' consumption in the short term.At the press conference, Liu Aihua stated that the recent Central Political Bureau meeting made specific arrangements around promoting consumption, emphasizing the need to focus on boosting consumption to expand domestic demand. Economic policies should shift more towards benefiting the people's livelihood and promoting consumption, especially with the direct allocation of about 150 billion yuan in long-term special government bond funds to localities to vigorously support the implementation of a consumer goods replacement program. As policies to increase residents' income and enhance their consumption capacity and willingness are implemented, the foundation for the recovery of the consumer market will be further consolidated.

Demand Insufficiency Constrains Industrial Production

Under the combined effects of intensified macro policies, accelerated growth of new drivers, and the strengthening role of exports, industrial production has maintained rapid growth, and the industrial structure has continued to optimize. In July, the national industrial value-added above designated size grew by 5.1% year-on-year, a decrease of 0.2 percentage points from the previous month; the month-on-month growth was 0.35%.

Among the three major categories, the manufacturing industry grew the fastest. In July, the manufacturing value-added grew by 5.3% year-on-year, higher than the overall industrial growth but 0.2 percentage points lower than in June; the electricity, heat, gas, and water production and supply industry saw a significant slowdown of 0.8 percentage points year-on-year to 4%; the mining industry's year-on-year growth accelerated by 0.2 percentage points to 4.6%, still lower than the overall industrial growth rate.

The sales rate of industrial enterprise products in July was 97.2%, an increase of 2.7 percentage points from June, and a decrease of 0.6 percentage points from the same period last year. The export delivery value of industrial enterprises grew by 6.4% year-on-year in nominal terms, after two consecutive months of deceleration, the growth rate increased by 2.6 percentage points compared to June, indicating that exports still have a certain resilience.

Liu Aihua analyzed that since the beginning of this year, despite the complex international trade environment, China's foreign trade enterprises have fully leveraged their strong resilience and vitality, seizing the opportunity of the global trade recovery, and the export growth of industrial products has accelerated. In the main export industries, the export delivery value of the electronics industry turned from a decline to an increase year-on-year, which is the main support for the acceleration of the export delivery value growth rate in the current month; the export delivery value of the automotive industry has maintained double-digit growth for eight consecutive months since December 2023; general equipment, special equipment, and the chemical industry have also achieved double-digit growth.

It is worth noting that the car production experienced a year-on-year decline for the first time in July. The production in the month was 2.297 million vehicles, a decrease of 2.4%, of which new energy vehicles were 988,000, an increase of 27.8%.

Chen Shihua, the deputy secretary-general of the China Automobile Manufacturers Association, said that the car market entered the traditional off-season in July, with some manufacturers taking high-temperature vacations, and the production and sales rhythm slowed down. The overall market performance was relatively flat, with a decline in both month-on-month and year-on-year terms. With the further strengthening of the replacement policy, both passenger cars and commercial vehicles are receiving subsidy support. The increased policy at the national level will further release the replacement demand in the existing market. Coupled with the continuous introduction of new car models by car companies, and multi-level measures such as the relaxation of purchase restrictions and the issuance of additional quotas by some local governments, it is conducive to achieving the annual expected goals.

Yang Delong, the chief economist of Qianhai Kaiyuan Fund, said that judging from the manufacturing PMI, China's manufacturing purchasing manager's index in July was 49.4%, which is below 50%, indicating that the demand in the manufacturing industry is low. The next step is to adopt proactive fiscal policies to stimulate demand and drive the recovery of industrial production.

Regarding the trend of industrial growth in the next stage, Liu Aihua said that although facing challenges such as a severe and complex international environment and insufficient domestic effective demand, enterprises maintain a relatively optimistic expectation. In July, the PMI's production index for enterprises was 50.1%, and the expected index for business production and operation activities was 53.1%, continuing to be in the expansion range. At the same time, the accelerated promotion of "two heavy" and "two new" projects is conducive to the expansion of domestic demand, and the growth and strengthening of emerging industries and future industries will also provide more momentum for industrial development, which is beneficial for maintaining a stable and rapid growth in industry.Comprehensive Downturn in Investment Across Three Major Areas

Affected by extreme weather conditions such as high temperatures and heavy rainfall in some regions, the fixed asset investment in July has slowed down. However, overall, it has maintained a development trend of expanding scale and optimizing structure.

Data shows that from January to July, the national fixed asset investment (excluding rural households) was 28,761.1 billion yuan, a year-on-year increase of 3.6%, which is a 0.3 percentage point decrease compared to the January-June period; excluding real estate development investment, the national fixed asset investment grew by 8.0%.

Liu Aihua stated that the decline in the growth rate of fixed asset investment is mainly due to the constraints of extreme heavy rainfall and high temperatures, which have affected factors such as construction work. However, the supporting role of major projects remains significant, and the policy effect of large-scale equipment renewal continues to be released, continuing to drive the expansion of the investment scale.

With the acceleration of the high-end, intelligent, and green development of the manufacturing industry, investment in manufacturing has maintained a steady and rapid growth. From January to July, manufacturing investment increased by 9.3% year-on-year, a 0.2 percentage point decrease compared to the first six months; the contribution rate to the total investment growth was 62.2%, an increase of 4.7 percentage points compared to the first half of the year. Among them, investment in consumer goods manufacturing increased by 15.8%, investment in equipment manufacturing increased by 10.7%, and investment in raw material manufacturing increased by 9.3%, and the supporting factors for manufacturing investment continued to strengthen.

Driven by the policy of large-scale equipment renewal, investment in the purchase of equipment, tools, and instruments increased by 17.0% year-on-year, with a contribution rate of 60.7% to the total investment growth; investment in manufacturing technology transformation increased by 10.9%, maintaining a double-digit growth, which is 7.3 percentage points faster than the total investment.

Real estate investment continued to bottom out, dragging down the overall investment growth. From January to July, the total real estate development investment decreased by 10.2% year-on-year, with an increase of 0.1 percentage point in the decline. According to estimates, the decline in July increased by 0.7 percentage points to 10.8%.

Yang Xin, a macro researcher at Hongta Securities, said that despite the implementation of multiple real estate support policies, the number of cities where the market is warming up is still limited. Most regions still face the problem of supply and demand imbalance, and housing prices continue to be sluggish, which further weakens residents' willingness to buy houses. Therefore, it is necessary to further increase the policy efforts to stabilize the real estate market.

The impact of local debt reduction continues, coupled with the impact of extreme weather such as high temperatures and heavy rainfall in some regions on construction, from January to July, the total infrastructure investment increased by 4.9% year-on-year, with a decline of 0.5 percentage points in the growth rate. Among them, investment in the water conservancy management industry accelerated by 1.5 percentage points to 28.9%, and investment in the railway transportation industry slowed down by 1.3 percentage points to 17.2%.

Zhou Maohua, a macro researcher at the financial market department of Everbright Bank, said that the domestic active fiscal policy has increased the intensity of key infrastructure to make up for the shortcomings, playing a key role in stabilizing growth through infrastructure investment. From the trend, with the issuance and use of special treasury bonds, promoting the accelerated use of special bond funds, and the relatively low base of infrastructure investment in the second half of last year, it is expected that the growth rate of infrastructure investment in the second half of the year is likely to moderately accelerate.Wang Qing also believes that the Politburo meeting at the end of July called for macro policies in the second half of the year to "continue to exert effort and be more effective," and put forward specific requirements such as "accelerating the issuance and use of special bonds, making good use of ultra-long-term special government bonds, and supporting the construction of national major strategies and key field security capabilities." This implies that the third quarter will see a peak in government bond issuance, and after August, the growth rate of infrastructure investment may slightly rebound.

Regarding the trend of investment growth in the next phase, Liu Aihua stated that major initiatives such as "two heavy" and "two new" are currently being accelerated. In the future, as the construction of projects such as ultra-long-term special government bonds, central budget investment, local government special bonds, and additional government bonds for 2023 is accelerated and physical work volume is formed more quickly, the government investment-driven amplification effect will continue to be released. At the same time, the gradual improvement of corporate benefits is also conducive to the continuous recovery of the willingness and ability of private investment. Overall, the role of investment in stabilizing growth and optimizing supply in the next phase will be further utilized.