Chinese retail sales, fixed asset investment slow in July

Chinese economic activity cooled more than expected last month as authorities' tightening measures began to bite.

According to China's National Bureau of Statistics, retail sales in Asia's largest economy slowed to a 10.4% pace year-on-year rate of change (consensus: 10.8%), down from 11.0% in the previous month.

In parallel, year-to-date fixed asset investment grew at a clip of 8.3%, down from the 8.6% rise observed throughout the first half.

That implied a slowdown from a 8.6% year-on-year pace in June to 6.8% in July, said Julian Evans-Pritchard at Capital Economics.

FAI was even weaker once rapidly rising capital goods prices were taken into account he said, with weakness concentrated among private sector manufacturing firms. Property investment and state-sponsored infrastrcuture investment also softened.

Industrial production was also weaker, with the rate of growth falling from a 7.6% year-on-year pace in June (consensus: 7.1%) to 6.4% for July.

However, adjusting for the questionable prices used in the official statistics industrial production actually held up "well" in July, Evans-Pritchard said.

Even so, strength in sectors like steel was unlikely to last.

"Our industrial output index – which combines the output volumes of key products – suggests that, having slowed more than the official figures show since the start of the year, industrial output actually held up well in July," he said.

"The upshot is that both foreign and domestic demand appear to have softened at the start of Q3. A few sectors, such as steel, seem to have defied this slowdown. But the strength in these areas likely won’t last given that policy tightening is set to further weigh on infrastructure and property investment in coming quarters."