TAKEAWAY: Domestic demand dampens

China’s domestic demand continued to weaken in July, with retail sales seeing growth of only 0.6% year on year, missing analysts’ more optimistic forecasts of 1.3% and down from the previous month of June, which saw growth at 1%. This comes shortly after the Q2 GDP growth rate was reported by Beijing as being only 4.3%, down from the 5% reported for Q1 and short of the governments’ target of 4.5-5% for the year.

There has been much talk recently of China having a K-shaped economy—one part pointing up, which refers to industries doing very well, such as AI, robotics, batteries and other tech, and the other part pointing down, which is mainly the basic domestic economy. And this downward pointing part appears to be getting ever steeper.

Domestic demand has been on the lips of policymakers for a long time, and boosting it is a prominent part of the government’s current Five-Year Plan. Yet growth in retail—which is perhaps the biggest key indicator of consumer demand—is continuously slowing. In 2025, subsidies offered some short-term relief, but as they dried up, so did the Chinese public’s willingness to spend. Policymakers have put much emphasis on the development of robotics and increasing automation in factories: as we have said time and time again, this helps boost manufacturing capacity does it does nothing for spending.