Chinese factory, consumer activity slow amid economy struggles

China's economy showed further signs of weakness last month, with key data Monday revealing factory output and consumption rising at their weakest pace for around a year.

Beijing has struggled to fully reignite the world's number two economy since the end of the Covid-19 pandemic, with the once-booming property sector mired in a debt crisis and exports facing mounting headwinds.

The trends have contributed to a slump in consumer confidence, dragging on activity and threatening leaders' official growth target for this year of around five percent.

Industrial production edged up 5.2 percent year-on-year in August, according to data from the National Bureau of Statistics (NBS), the slowest pace since the same month last year.

The figure missed the 5.6 percent growth forecast in a Bloomberg survey of economists.

"The activity data point to a further loss of momentum last month," Zichun Huang, China economist at Capital Economics, wrote in a note.

"While some of this reflects temporary weather-related disruptions, underlying growth is clearly sliding, raising pressure on policymakers to step in with additional support," she said.

The NBS also said retail sales climbed 3.4 percent last month — the slowest since November and falling short of the 3.8 percent estimated in the Bloomberg survey.

The figure is another sign of China's protracted spending slump, which has also raised fears of a deflationary spiral weighing down growth.

'Soft sentiment'

China's vast real estate sector once served as a key driver of economic growth, fueled by decades of rapid urbanization and improved living standards.

But the industry entered its current downturn in 2020 as the debt of several leading firms soared and major projects stalled.

In August, new residential property prices fell year-on-year in 65 out of 70 cities surveyed by the NBS, data also showed.

"The property market decline is a key driver behind soft consumer sentiment, which continues to dampen retail sales," wrote Lynn Song, chief economist for Greater China at ING, in a note.

"Sentiment remains soft despite a slew of measures over the past year," he wrote.

Chinese policymakers have since last year taken various steps to encourage spending, including a subsidy scheme for consumer goods and cancellations of certain restrictions on homebuying.

But activity is still lackluster, with data last week showing consumer prices falling in August at their fastest rate in half a year.

Urban unemployment ticked up to 5.3 percent last month, a slight increase from 5.2 percent in July, according to NBS data.

"Forward signals on the labor market haven't improved as growing external headwinds cloud the outlook," wrote Sheana Yue of Oxford Economics.

"We estimate that the economy could fall off a cliff in Q4 if the sluggish July and August activity pace is sustained, bringing into focus — once again — the urgent need for stimulus," she wrote.

'Numerous risks'

NBS chief economist Fu Linghui acknowledged "weak" demand in the domestic economy during a Monday news conference, noting that "some enterprises are facing operational difficulties".

He added that "there is still much instability and uncertainty in the external environment, and (China's) economic performance still faces numerous risks and challenges".

One of the main challenges facing the economy is the strained relationship between Beijing and Washington as disputes over technology and geopolitics mount.

China-US trade tensions have been on a rollercoaster ride in 2025, with both sides slapping escalating tariffs on each other.

Officials from the two countries on Sunday kicked off a fresh round of talks in Madrid, where they are set to thrash out disputes over hefty US tariffs and other key issues.

by Peter Catterall and Mary Yang