Policy Advancements and Retreats Amid July Economic Data

Data from July reflects increased uncertainty regarding economic stabilization in the third quarter, though there are also some preliminary signs of stabilization at the margin. After excluding adverse effects from high temperatures and heavy rainfall, industrial investment continues to show resilience, supported by exports. Consumption, when excluding the drag from automobiles, also demonstrates some underlying strength, with services performing particularly steadily. Meanwhile, the recent approval by the State Council of over 170 billion yuan in nuclear power construction projects, together with the accelerated advancement of the “six major networks” infrastructure, indicates that while there is a lag in fiscal-driven stable investment, there is hope for a turnaround by the end of the quarter.

Industry exhibits the characteristics of “external demand underpinning and structural divergence,” with underlying resilience providing a buffer period for policy measures. Although July's industrial added value growth slowed due to seasonal and extreme weather disturbances, the export delivery value of industrial enterprises maintained double-digit high growth. The strong external demand offers a window for short-term macro policy observation. Structurally, high-tech industries were a highlight, contributing around 50% to industrial growth from January to July. In recent years, industrial added value and infrastructure investment growth rates have often diverged, and the current resilience in industrial activity objectively delays the urgency for strong short-term fiscal stimulus to underpin infrastructure.

Pressure on investment momentum reflects the objective lag in fiscal policy strength. In July, fixed asset investment growth slowed to -12.8% (compared to -10.0% previously), and elevated fiscal deposits indicate that funds are being accumulated but not yet deployed, with signs of increased fiscal impulse yet to materialize. Considering policy transmission lags and disturbances from extreme weather in August, investment stabilization is expected no earlier than September. Fiscal strategies for stable investment are now more precise, with structural efforts as the main focus, and construction in areas such as the “six major networks” will remain a key aspect going forward.

The impact of real estate on investment continues to deepen, with the main front for stabilizing expectations shifting to core regions. Facing increased uncertainty about halting the downturn, first-tier cities led by Beijing have recently eased some demand-side restrictions at the margin. This move is expected to support stabilization in sales in key core areas. The upcoming “Golden September and Silver October” will serve as a crucial period to assess the effectiveness of these new policies.

The recovery in consumption is showing a “strong services, weak goods” structure, with policy guidance now clearly tilting toward medium and long-term systemic reforms. Social retail sales in July grew a modest 0.6%, with the impact of the “trade-in” policy waning and automobiles (down 17% year-on-year) remaining the main drag, while services consumption continues to demonstrate resilience. From the deployment outlined in the “Fifteenth Five-Year Plan on Expanding Consumption” to the Politburo’s focus on “tapping the potential of services consumption,” it is evident that the policy focus is on medium- and long-term institutional development, while short-term stimulus may remain limited.