What are the market implications for China’s growth imbalance worsened with domestic activity slowing in July?

Market participants should monitor USD/CNY levels closely, particularly around the 1.075 target. The data trend could lead to increased volatility if the missed forecasts prompt further Chinese economic interventions.

What are the risks to this view on China’s growth imbalance worsened with domestic activity slowing in July?

Any significant fiscal stimulus measure announced by the Chinese government aimed at boosting domestic consumption could reverse the current bearish stance, leading to a stronger Yuan against the USD.

China’s growth imbalance worsened with domestic activity slowing in July

Q: What's takeaway 1 on China’s growth imbalance worsened with domestic activity slowing in July?

China's economy shows signs of slowing, impacting the growth outlook.

Q: What's takeaway 2 on China’s growth imbalance worsened with domestic activity slowing in July?

Fixed asset investment dropped to -6.7% YoY, the lowest since April 2020.

What the desk is arguing

The desk views the current state of China’s economy as a harbinger of further economic challenges, with domestic activity notably cooling and investment figures pointing towards a lack of momentum. Per the full note from ING, July saw fixed asset investment plummet to -6.7% year-on-year, marking the lowest level since April 2020 and underscoring the country's structural economic imbalances. This lack of positive data, paired with the heightened downside risks to growth, creates a potentially bearish outlook for the Chinese Yuan in the near term.

Investment in sectors like manufacturing and infrastructure has continued to falter severely, with significant contractions reported at -1.7% and -3.6% year-to-date respectively. Such patterns highlight vulnerabilities in critical economic areas, raising concerns that consumption stimulus efforts may not yield desired outcomes soon.

Where it sits in our coverage

Our current consensus target for USD/CNY stands at 1.075, with a range spanning from 1.04 to 1.12. Notable firms projecting divergent outcomes include: - jpmorgan: Target of 1.10, tenor March 2026 - bofa: Target of 1.04, tenor March 2026

This outlook is slightly heavier on the bullish side when compared to the broader market consensus, indicating prevailing caution among analysts as the desk’s assessment leans toward the upper end of the target spectrum.

How other firms see it

In general, firms like jpmorgan see the potential for the Yuan to weaken due to ongoing economic headwinds, while bofa is more skeptical, suggesting the possibility of stabilization in the near term. Both firms’ positions reflect contrasting perspectives on China’s recovery trajectory and its implications for the Yuan.

Trading pair dynamics such as USD/CNY could see significant volatility as economic indicators trickle in, with attention likely focused on further investment reports and fiscal measures taken by the Chinese government.

Articles China’s growth imbalance worsened with domestic activity slowing in July Published 08:49 China Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download We had another month of disappointing data in July as domestic activity fell short of forecasts across the board. The NBS attributed weather effects for the miss, but data has generally been soft since the second quarter. China's K-shaped divergence continues to widen, and risks to the growth outlook remain balanced to the downside Lynn Song Hi-tech investment is one of the few bright spots in China's investment data Fixed asset investment growth continues to underwhelm Fixed asset investment (FAI) dropped to -6.7% year-on-year, year-to-date over the first seven months of the year, down from -5.7% YoY in the first half of 2026.

The reading once again undershot market expectations (market: -6.2%, ING: -6.3%) and marked the lowest level since April 2020. There’s very little in terms of silver linings in the investment data. Hi-tech investment is the only category looking decent, accelerating a second consecutive month to 5.0% YoY ytd, up from 4.6% YoY ytd.

Rail, ships, and aerospace (18.7%) continues to outperform on an industry level, followed by textiles (7.9%) and computers and communications (7.8%). Everything else looks pretty soft. Manufacturing (-1.7%), infrastructure (-3.6%), and real estate (-19.2%) year-to-date FAI all fell further into contraction territory in July.

Auto sector investment fell -5.3% YoY ytd even amid strong exports, as competition strengthens and domestic auto demand slows. Private sector investment remains a major drag, down -9.4% YoY ytd, while public sector investment also slowed further to -3.3% YoY ytd. The July Politburo meeting noted a goal to accelerate the pace of fiscal expenditures and the use of bond proceeds.

This could signal faster project approvals in the second half of the year, after we saw a sharp slowdown of investment so far this year. If this objective is achieved, it’ll be first seen in public-sector-led investment. Whether that is enough to help FAI growth overall bottom out in the coming months remains to be seen.

Hi-tech FAI the lone bright spot amid broad-based deceleration of investment July retail sales disappoint as consumption stagnates Retail sales failed to build on the small recovery of last month, falling to 0.6% YoY in July, down from 1.0% YoY in June. This fell well short of market expectations (market: 1.5%, ING: 1.7%). Year-to-date, retail sales have grown by just 1.2% YoY.

We discussed in last month’s report several subcategories are creating a substantive drag on retail sales growth, and they further worsened in July. Amid China’s EV transition, we saw both a sharp drop in auto sales (-17.0%) and petroleum (-7.6%). Furniture (-8.8%) and building and decoration materials (-14.2%) also saw steeper declines in July, though household appliances (-1.9%) saw a smaller contraction amid the continued weakness of the property market.

Finally, gold and jewellery sales fell sharply by -10.1% YoY as retail buying interest waned amid the gold price slump. Next month’s data will be interesting to see if the recovery of gold prices in August will translate to stronger gold and jewellery sales. Weak consumer confidence and the impact of previously front-loaded consumption via the trade-in policy continue to drag growth.

Markets may have been disappointed at a lack of tangible policy support for consumption after July’s Politburo meeting. While boosting consumption remains an important medium-term goal, we haven’t seen too much in terms of stimulus to shore up near-term spending. Resources continue to be concentrated in the tech race rather than boosting domestic consumption.

Three forces are dragging China's consumptions beyond simply soft confidence Industrial production slows by more than expected Industrial production rose 4.5% YoY in July, slowing from 5.3% in June and falling short of forecasts for a smaller moderation (market: 5.0%, ING: 5.0%). This brought year-to-date industrial production growth to 5.3% YoY, slightly lower than the 5.4% recorded in the first half, but still relatively resilient compared with other domestic activity indicators. Manufacturing continued to outperform the headline, growing 5.5% YoY in July, while high-tech manufacturing accelerated to 16.9% YoY, up from 14.1% in June.

This reinforces the structural theme that China’s industrial growth is increasingly being driven by industrial upgrading and high-tech manufacturing, the strategic priorities for the country. Looking at the outperforming sectors, strength remained concentrated in high-tech manufacturing sectors. On the VAI side, computer, communication and other electronic equipment rose 19.1% YoY, making it the strongest major sector, followed by rail, ships and aerospace (13.6%), and special equipment (12.6%).

The product-level industrial production data also point to continued strength in new economy sectors. Industrial robots rose 30.2% YoY, new energy vehicles rose 29.9% YoY, and semiconductor integrated circuits rose 20.7% YoY, This supports the view that the industrial cycle is being increasingly supported by robotics, semiconductors, NEVs and higher-end manufacturing. In contrast, traditional property and infrastructure-linked sectors remained weak.

Cement output fell -11.6% YoY, steel products fell -4.1% YoY, and flat glass declined -3.6% YoY, underscoring the continued drag from the old property and construction-related industrial cycle. Industrial activity continues to outperform amid solid external demand and industrial upgrading themes Property prices yet to bottom but another month of stabilisation in tier 1 cities China's National Bureau of Statistics released its 70-city sample of property prices for July. New home prices fell by -0.18% month-on-month, while used home prices dipped by -0.29%.

In the past few months, the monthly decline in prices has been relatively small, but we have yet to confirm a bottom for the overall market. The city-level breakdown showed that 23 of 70 cities saw new home prices stabilise or pick up in July, which was a 15-month high. However, only 8 of 70 cities saw secondary market prices pick up in July, marking a five-month low.

We have argued that secondary market prices are more important, given the impact on household balance sheets. In the secondary market, prices were generally stable or rising in China's tier 1 cities. Any stabilisation of property prices would likely start from the core.

As expected, property investment continued to slump, dropping to -19.2% YoY ytd. Investment looks likely to remain an overhang, as inventories remain elevated and prices have yet to confirm the bottom. As long as investment continues to drop, local governments may also find it hard to raise revenue via land sales. 70-city property prices continued to slide in July Retail sales Industrial Production Fixed asset investments China Asia Pacific Asia Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives.

The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Author Lynn Song Chief Economist, Greater China Lynn Song joined ING in January 2024 as the Chief Economist for Greater China. Prior to joining ING, he worked at China Construction Bank International, China Merchants Securities (HK), and Haitong… In this article Fixed asset investment growth continues to underwhelm July retail sales disappoint as consumption stagnates Industrial production slows by more than expected Property prices yet to bottom but another month of stabilisation in tier 1 cities

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