Broker: UOB Kay Hian
Date of Report: Monday, 18 August 2025

China’s Economic Growth Slows Sharply as Trade War Impact Deepens: Key Data, Sector Analysis, and Policy Outlook

Overview: Growth Headwinds Intensify for China’s Economy

China’s latest economic data paints a stark picture of decelerating growth. As the trade war’s aftershocks deepen, July’s figures fell short of expectations across industrial production, fixed asset investment, and retail sales. The unemployment rate ticked higher, and persistent weakness in the property sector is dragging on overall momentum. Analysts at UOB Kay Hian expect additional fiscal support measures as policymakers respond to mounting downside risks.

Key Economic Indicators: July 2025 Data at a Glance

* UOB Kay Hian estimates

Industrial Production: Growth Momentum Reverses

China’s industrial production growth slowed sharply to 5.7% year-on-year in July, missing consensus expectations and retreating from June’s robust 6.8%. This marks a reversal from the earlier months, which had benefited from front-loaded overseas demand. Notably, the highest growth was recorded in railway, ship, aerospace, and other transportation equipment manufacturing at 13.7%. However, high-tech manufacturing also saw a slowdown to 9.3% (+0.4ppt lower than prior), and automobile manufacturing slumped to 8.5% (down 2.9ppt).
Key takeaways:

• Growth in traditional industrial strongholds is fading as overseas demand normalizes.
• High-tech and automotive manufacturing — previously resilient sectors — lost momentum.
• With US firms already holding elevated inventory levels, further trade truce extensions may yield limited near-term benefits.

Retail Sales: Consumer Sentiment Softens Further

Retail sales growth slowed dramatically to 3.7% year-on-year in July, missing the 4.6% consensus and marking the weakest print of 2025. Both overall goods sales and catering revenue reflected diverging trends:

• Retail sales of goods posted a second consecutive monthly decline (4.0%, down 1.3ppt from June).
• Catering revenue offered a slight improvement at 1.1% (up 0.2ppt).

The drop is particularly concerning as it comes despite ongoing government subsidy schemes — suggesting that these measures may be insufficient to offset deteriorating consumer sentiment. In response, authorities have announced new subsidies for interest payments on eligible personal consumer loans, which could bolster future consumption.

Fixed Asset Investment: Property Sector Remains a Drag

Fixed asset investment (FAI) year-to-date growth collapsed to 1.6%, the lowest in a year and well below the Bloomberg consensus of 2.7%. This sharp deceleration was primarily driven by the deepening woes in the property sector:

• Property FAI YTD worsened to -12.0% (down 0.8ppt), hitting new 12-month lows.
• Despite some improvement in actual supply dynamics, the property sector’s persistent weakness continues to be a significant drag on overall economic activity.

Unemployment: Labor Market Under Pressure

China’s surveyed unemployment rate edged up to 5.2% in July, compared to 5.1% in June and 5.0% in May. This increase underscores the fragility of domestic economic confidence and heightens the urgency for further policy intervention.

Sectoral Highlights: Industry Performance Breakdown

• Railway, Ship, Aerospace, and Other Transportation Equipment: Led industrial production growth at 13.7% YoY.
• High-Tech Manufacturing: Growth moderated to 9.3% YoY (down 0.4ppt from prior period).
• Automobile Manufacturing: Notably slowed to 8.5% YoY (down 2.9ppt).
• Retail Goods Sales: Declined for the second consecutive month (4.0% YoY, down 1.3ppt).
• Catering Revenue: Slight improvement at 1.1% YoY (+0.2ppt).

Policy Outlook: Government Set to Ramp Up Support

Given the mounting downside pressures and fragile sentiment, further fiscal support is widely anticipated:

• Existing government subsidies have not fully offset weakening demand.
• Newly announced interest payment subsidies on eligible personal consumer loans may help stimulate consumption.
• More targeted support for the property sector and employment could follow as authorities seek to stabilize growth and confidence.

Visualizing the Trend: Key Economic Charts

Analyst Commentary

Tham Mun Hon, CFA, and Claire Wang of UOB Kay Hian emphasize that July’s data validate earlier warnings about persistent downside risks. As both the global trade environment and domestic confidence remain fragile, the analysts anticipate a stepped-up policy response to shore up growth and stabilize key sectors going forward.

Conclusion: Key Takeaways for Investors and Market Watchers

• China’s July economic data signals a broad-based slowdown, with key growth engines faltering amid trade war pressures and property sector weakness.
• Despite government efforts, consumer sentiment and business investment remain subdued, while unemployment edges higher.
• Further fiscal and monetary support is expected as policymakers seek to cushion the economy against ongoing shocks.
• Investors should closely monitor policy developments and sector-specific trends, particularly in property, manufacturing, and consumer markets.

Report prepared by UOB Kay Hian. For further inquiries, contact:
Tham Mun Hon, CFA – [email protected]
Claire Wang – [email protected]