China’s factories rev up, but slower consumption fuels concerns

BEIJING – China’s industrial output picked up pace in August, though sluggish consumption and a worsening investment slump reinforced concerns over deepening economic imbalances.Data from Sept 15 highlighted a familiar fault line in the world’s second-largest economy, where resilient manufacturing and exports are sustaining growth even as weak household spending and faltering investment weigh on domestic demand.The divergence is likely to intensify pressure on Beijing to roll out more support measures as policymakers seek a more balanced recovery.Industrial output grew 5.2 per cent from 2025 in August, quickening from a 4.5 per cent increase in July and beating expectations for a 4.8 per cent rise, according to figures released by the National Bureau of Statistics.Retail sales, a gauge of consumer activity, rose 0.4 per cent, slowing from a 0.6 per cent gain in July and below an expected 0.8 per cent rise.“We have lowered our 2027 growth forecast to 4.3 per cent, reflecting a more prolonged property downturn which is likely to keep growth subdued despite stronger public investment,” said Sheana Yue, senior economist at Oxford Economics.The government is targeting growth of between 4.5 per cent and 5 per cent in 2026.China’s economy entered the second half of 2026 on a weak footing, with factory output, consumption and investment all struggling to gain momentum.The latest data highlighted the scale of the challenge facing policymakers as businesses remain reluctant to commit new capital.Fixed-asset investment, which includes infrastructure and property investment, declined 7.2 per cent in the first eight months, marking the steepest drop since April 2020.Property investment dived 19.9 per cent in the first eight months from the same period in 2025, although investment in high-tech industries expanded 5.2 per cent in keeping with the global artificial intelligence boom.While factory activity improved in August, it remained in contraction and services activity stayed sluggish.Weak domestic demand also weighed on credit growth, as new bank loans returned to positive territory but fell well short of analysts’ forecasts after a record contraction in July.The nationwide urban surveyed unemployment rate came in at 5.3 per cent for August, edging up from 5.2 per cent the previous month.Extreme weather likely remained a drag on activity. Four typhoons made landfall in China during August, disrupting operations in the east coast manufacturing and logistics belt.Beijing has responded with faster government bond issuance and expanded loan interest subsidies for small private firms and consumers, while the central bank has pledged additional policy support without signalling explicit cuts to policy rates or banks’ reserve-requirement ratio.“The market is waiting for the fiscal policy to become more supportive in the third quarter after the economy slowed in the second quarter,” said Zhiwei Zhang, president and chief economist of Pinpoint Asset Management. REUTERS