China’s Economy Faces Persistent Strains: Growth Slows Across Retail and Manufacturing Sectors

In recent months, China’s economic landscape has been defined by mounting pressure, as key indicators reflect slowing momentum across both retail sales and factory output. For investors, business leaders, and analysts alike, these developments hold important implications for market positioning and expectations in the world’s second-largest economy.

Decline in Leading Economic Indicators

A major signal of economic health, the Leading Economic Index (LEI), has continued its downward trend through July 2025. This marks the seventh consecutive monthly decline this year, underscoring a broad-based slowdown. While machinery and transportation equipment imports provided some support, this was insufficient to counter widespread weakness. Five out of eight index components weighed negatively, and depressed consumer confidence since April 2022 remains a prominent drag.

The persistently negative semi-annual and annual growth rates of the LEI, along with a six-month diffusion index falling below 50 (indicating most components are weakening), have sent a renewed recession signal as of July. This is especially concerning given the LEI’s role as an early harbinger of economic turning points.

Moreover, efforts to provide temporary relief, such as a 90-day extension of the tariff pause announced in August 2025, may offer only limited breathing room. Underlying headwinds from weak domestic demand, a protracted property downturn, and lingering global uncertainties continue to exert substantial pressure on economic performance.

Retail Sales and Factory Output: Signs of Softening

Recent data show consumer spending—a key driver of economic growth—has softened. Retail sales have decelerated, reflecting not only cautious consumer behavior but also broader challenges in the domestic economy. Similarly, factory output has slowed, hampered by fragile demand both at home and in international markets. This is particularly noteworthy as industrial activity has traditionally been a pillar supporting China’s rapid expansion.

A closer look at official statistics reveals that while some sectors, like advanced manufacturing and essential equipment imports, have managed moderate gains, most categories are in decline or stagnation. This uneven recovery suggests that while pockets of resilience exist, they are far from sufficient to reinvigorate the overall economy.

Consumer Confidence Remains Low

Consumer sentiment is crucial for maintaining growth, driving retail sales, and fostering investment. However, Chinese consumers have exhibited sustained caution, with confidence levels remaining notably depressed since early 2022. Multiple factors contribute to this outlook, including job market uncertainty, volatile asset prices, and persistent worries about the property sector.

Notably, the property market—which for years provided both economic stimulus and a wealth effect—continues to decline, weighing heavily on household balance sheets and further dampening spending intentions. Without a convincing turnaround in this sector, a broader recovery in consumer confidence appears unlikely in the near term.

Official GDP Projections Signal a Slower Pace

Despite challenges, China’s coincident economic indicators—which track the current state of the economy—did expand by 0.9% in July 2025, up from a 1.1% increase in June. Over the first half of the year, real GDP growth managed 3.2%. Nonetheless, this is an improvement from the previous period but lags behind the rapid growth rates historically associated with China.

Looking ahead, annual real GDP growth is forecast to slow to 4.7% in 2025, slipping from 5.0% in 2024. While this represents continued expansion, the pace is notably slower, and reflects a shift from robust recovery toward more subdued, uneven growth. The current environment demands both vigilance and adaptability from market participants and policymakers.

Outlook and Implications

In summary, China’s economy is undergoing a period of adjustment marked by slowing retail sales, weaker factory output, and persistently low consumer confidence. Official indicators point to ongoing headwinds, with only limited indications of relief on the horizon. Near-term government measures, such as tariff pauses, may provide temporary support but are unlikely to reverse entrenched weaknesses without substantial policy intervention or an unexpected external boost.

For those investing in China or doing business in the region, the current signals underscore the importance of risk management, careful monitoring of policy announcements, and attention to sector-specific trends. While growth continues, the era of double-digit expansion appears to be behind us, and navigating this new normal will require agility, data-driven strategies, and a keen understanding of China’s evolving economic realities.