Growth momentum further slowed in August despite resilient trade performance. FAI disappointed the most, while IP remained relatively stable and retail sales appeared to stabilise. Continued weakness in data may prompt acceleration in policy implementation and increased support, Standard Chartered's economists report.

Alarming deterioration in investment

"August real activity data points to a broad-based weakening, especially in investment. In an alarming sign, investment contraction extended beyond the housing sector. Property investment plunged again by 19.4% y/y, and both manufacturing and infrastructure FAI continued to decline. Adverse weather conditions and recent capacity management actions may have weighed on capex. We think fiscal implementation needs to be accelerated to support FAI going forward."

"Consumer goods retail sales growth slowed further to 3.4% y/y in August, but turned positive on a m/m basis. While the resumption of the goods trade-in programme likely provided some support, its effectiveness could diminish, as we have flagged. The government has recently allocated more fiscal resources to support households, which should cushion retail sales going forward. Meanwhile, the services sector remained a stabiliser in 7M-2025: services retail sales growth stayed solid at 5.1% y/y and services production index growth was robust at 5.6% y/y over the period."

"Persistent downward pressure on growth could prompt more policy action. The government may accelerate implementation of the current budget and it has hinted at pre-allocation of the 2026 debt-swap bond quota. We expect one more 10bps policy rate cut in Q4, with a small risk of a slightly earlier cut, following our expected Fed rate cut in September. The PBoC is also likely to maintain ample liquidity and resume China government bond (CGB) purchases to accommodate government bond issuance."