July industrial production rose 3.8 percent from a year earlier, down slightly from June’s 3.9 percent, according to data from the National Bureau of Statistics (NBS). That compared with a 4.6 percent increase expected by analysts polled by Reuters. Retail sales, which only turned positive in June, rose 2.7% from a year ago, well missing analysts’ forecasts of 5% growth and below the 3.1% growth seen in June. The world’s second-largest economy narrowly escaped a contraction in the June quarter, hampered by the lockdown of commercial hub Shanghai, a deepening slump in the property market and persistently soft consumer spending. But risks to development abound as many Chinese cities, including manufacturing hubs and popular tourist spots, imposed lockdown measures in July after new outbreaks of the more contagious Omicron variant were discovered. “The risk of stagflation in the global economy is increasing and the foundations for domestic economic recovery are not yet solid,” the NBS warned in a statement. The real estate sector, which has been further shaken by the mortgage boycott that weighed on buyer sentiment, worsened in July. Property investment fell 12.3% in July, the fastest pace this year, while the drop in new sales widened to 28.9%. Chinese policymakers are scrambling to balance a fragile recovery and eradicating emerging Covid clusters, with the economy expected to miss its official growth target this year – set at around 5.5% – for the first time since 2015. “All economic data disappointed in July, with the exception of exports. Loan demand from the real economy remained weak, suggesting a cautious outlook for the coming months,” said Nie Wen, an economist at Shanghai-based Hwabao Trust, adding that Covid cases and the heatwave in July had affected activity. “Now it looks increasingly difficult to achieve even 5-5.5% growth in the second half.” The employment situation remained fragile. The national unemployment rate fell slightly to 5.4% in July from 5.5% in June, although youth unemployment remained stubbornly high, reaching a record high of 19.9% in July. To support growth, the central bank on Monday unexpectedly cut interest rates on its key lending facilities for the second time this year. New yuan loans fell more than expected in July as companies and consumers remained cautious about taking on debt, data showed on Friday. Wang Jun, an economist at Zhongyuan Bank, believes the authorities will focus on implementing existing policies, rather than implementing aggressive new stimulus measures. “We now face a typical liquidity trap problem. No matter how loose the credit supply is, companies and consumers are wary of taking on more debt,” Wang said. “Some of them are now prepaying their debt. This may herald a recession.” Fixed-asset investment, which Beijing had hoped would drive growth in the second half as exports soften, rose 5.7 percent in the first seven months of the year compared with the same period a year earlier, beating forecasts for a rise 6.2% and a decrease from 6.1%. jump in January-June.
