China has unveiled a comprehensive package of measures to boost consumption in counties and smaller cities as part of efforts to revive sluggish domestic demand. According to the Ministry of Commerce, the measures include upgrading consumption channels in counties, including renovating township commercial centres, rural markets and local fairs. The government is encouraging domestic and international brands to open regional debut stores and promote the revitalisation of existing land resources to improve services. The lower-tier markets, covering third-tier cities, counties, townships and rural areas, account for about 70% of China's population and 60% of total retail sales of consumer goods, as reported by Xinhua news agency. The guideline urges better services that cater to the elderly and children, more efficient urban-rural distribution networks, and stronger county-level employment, with additional channels for residents to increase their incomes.
China's July economic data revealed significant weakness across key indicators, with industrial output slowing to 4.5% year-over-year compared to 5.3% in June, and retail sales managing only 0.6% growth despite summer holiday tourism spending. According to reports from Reuters, industrial output growth missed expectations for a 4.8% rise in a Reuters poll of 26 analysts, highlighting strains on the economy from weak domestic demand. The National Bureau of Statistics explicitly flagged extreme weather alongside external uncertainty as key drags on economic activity during the month. Fixed-asset investment contracted 6.7% in the first seven months of 2026, compared with an expected 6% decline and a 5.7% fall in the January-June period. Growth in gross domestic product likely decelerated to around 4.1%, below the 4.3% level Beijing needs in the second half to reach its annual growth target, according to BNP Paribas chief China economist Jacqueline Rong. The surveyed urban jobless rate climbed to 5.2% from 5% in June, adding to concerns about labor market conditions.
The private manufacturing PMI had already cooled to 50.9 in July from 51.7, with new-order growth the weakest since January, according to Reuters reports. Beijing has so far favored accelerating already-budgeted fiscal spending rather than reaching immediately for another giant stimulus package. Xu Tianchen, senior economist at the Economist Intelligence Unit, noted that "The poor performance is due in part to ineffective use of the policy measures in hand. Fiscal spending has lagged behind, for example." He emphasized that "It's a call for officials to be bolder about spending what they have." The contraction in fixed investment deepened from the first half, with fixed-asset investment contracting 6.7% in the first seven months of 2026, compared with an expected 6% decline and a 5.7% fall in the January-June period. The official manufacturing purchasing managers' index unexpectedly slipped into contraction, with a gauge of new orders in July's official manufacturing PMI swinging back into contraction by dropping to the lowest in more than three years.
Policymakers have been relying partly on trade-in subsidies to support purchases of autos, home appliances and other durable goods, but analysts noted that the pace of subsidy distribution had weakened again in July, with daily average sales dropping to 6.3 billion yuan ($934.8 million) from 9 billion yuan in June. Auto sales declined for a 10th straight month in July, with passenger vehicle purchases falling 21%, a worrying sign for the broader auto sector that represents the single biggest goods component in total retail sales with a share of about 8%. The property slump, which many economists argue is a key factor weighing on household confidence, has shown no signs of ending, with new-home prices in July down 3.2% from a year earlier and 0.1% from June. Economists estimate that about 52% of household wealth is tied up in real estate, a share that has declined in recent years as the protracted property crisis has pushed investors toward gold and other assets. Real estate investment plunged 19.2% on year in the first seven months, a fresh record low, while both consumer and producer inflation slowed more than expected in July as the oil shock from the Iran war subsided.
According to Reuters analysis, Fu Linghui, an NBS spokesperson, told a press conference that officials would step up counter-cyclical policy adjustments to bolster domestic demand. The disappointing data, following second-quarter growth that cooled to a three-and-a-half-year low, highlights China's continued dependence on exports to offset sluggish consumption and investment even as it confronts headwinds from U.S. tariffs and the conflict in the Middle East. While the weather disruptions created significant short-term challenges, the underlying economic issues including cautious household sentiment, property market drag, and weak investment appetite remain concerning for sustained recovery prospects. China's leaders have pledged to shore up the slowing economy by accelerating fiscal spending and introducing new policies "in a timely manner," but have so far stopped short of signalling major new stimulus measures. China logged another month of more than $100 billion in trade surplus last month, with the full-year total on track to top $1 trillion for a second year, providing some support to the economy. The emerging pattern is one of selective strength amid broad softness, with the question being whether policy-supported pockets of activity can eventually generate a broader recovery in household spending and private investment.
