Beijing: China's slowing retail sales growth and fixed-asset investment, coupled with a rising unemployment rate, are signaling a slowdown in domestic demand. This situation is fueling expectations that Beijing may need to implement additional fiscal and monetary measures to support economic growth.
According to Anadolu Agency, China's retail sales grew by 0.4% year-on-year in August, which fell short of estimates and showed a decline compared to the previous month. Fixed-asset investment also saw a decrease of 7.2% during the same period, which was worse than anticipated. The unemployment rate in China exceeded expectations, reaching 5.3% in August, while industrial production rose by 5.2%.
The loss of momentum, particularly in consumption and investment, could complicate the path Beijing will have to take to meet its growth targets. Lynn Song, chief China economist at ING Group, highlighted in a recent ING Think article that the weak domestic demand in the country is keeping consumption and investment low. Song anticipated that gross domestic product (GDP) growth might stagnate in the third quarter and suggested that the 4.6% growth forecast for 2026 might need to be revised downward.
Song pointed out that the positive developments in industrial activity were driven by external demand. He also noted that China's advancements in its tech and industrial sectors continue to support growth. Sectors focused on high tech and external demand are performing well, whereas most other categories are underperforming.
Auto sales were identified as the biggest drag on retail sales, experiencing an 18.5% year-on-year decline. Despite strong exports, China has maintained its status as both the largest producer and consumer of electric vehicles, but the drop in domestic demand has negatively impacted the auto sector this year. Furniture sales also declined by 7.9%, though household appliance sales saw a 2.3% annual increase, marking their first positive growth since September 2025.
Gold and jewelry sales experienced a 17.5% year-on-year decrease, reaching their lowest level in the past four months, despite a rebound in gold prices in August. Recent measures aimed at stimulating consumption, such as interest rate subsidies on consumer loans, are expected to have only a modest impact on overall consumption growth.
Song mentioned that as the negative effects of the trade-in policy diminish, there might be some stabilization in retail sales. However, he emphasized that a more significant turnaround will likely require additional support.