China’s economy showing signs that slowdown may be extending

August Economic Indicators and Growth Momentum

The Chinese economy experienced a significant cooling trend in August, with key performance metrics falling short of market expectations. Industrial output growth slowed to 5.2 percent year-over-year, down from 5.7 percent in July, marking the lowest reading for the sector since last August. Consumption data provided a similar picture; retail sales grew by 3.4 percent compared to the previous year, the weakest pace of growth recorded since November and falling short of the 3.9 percent gain forecast by economists surveyed by Reuters.

These figures underscore a broader struggle with deflationary pressure. The consumer price index (CPI) fell 0.4 percent from a year earlier, while producer prices for industrial goods declined by 2.9 percent. This follows a difficult July where factory output grew 4.5% from a year earlier—missing a Reuters poll forecast for 4.8% growth—and retail sales grew only 0.6% despite summer holiday tourism spending.

“The activity data point to a further loss of momentum; While some of this reflects temporary weather-related disruptions, underlying growth is clearly sliding, raising pressure on policymakers to step in with additional support.”

Zichun Huang, China economist at Capital Economics

Trade Negotiations and U.S.-China Relations

The economic slowdown coincides with high-stakes diplomatic efforts to address trade friction between Beijing and Washington. Following a two-day meeting in Spain involving U.S. Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer, the two nations are attempting to finalize a framework for economic stability. President Donald Trump described the meetings as having gone “very well” on Monday.

A central point of contention remains the future ownership of the short-form video app TikTok. Treasury Secretary Bessent confirmed that a framework deal exists to transition the platform to U.S.-controlled ownership, though he did not provide specific terms. According to reports, President Trump and Chinese President Xi Jinping are scheduled to speak on Friday to complete the deal.

Other areas of contention included U.S. opposition to China’s purchase of Russian Federation oil—an issue that saw India’s tariff rates doubled in early August. The trade landscape remains fragile as the current tariff truce—which caps duties on Chinese imports at 30 percent and American goods at 10 percent—is set to expire in early November.

“There is little time to hammer out a meaningful trade agreement. What we are more likely to see is a series of ad-hoc deliverables, possibly a Chinese commitment to buy more U.S. soybeans and other products, a U.S. agreement to hold back on announcing certain further U.S. high tech export controls, and another 90-day rollover of the tariff pause.”

Wendy Cutler, vice president of the Asia Society Policy Institute

Policy Responses to Domestic Demand

Beijing has signaled an intent to pivot its strategy to address the problem of insufficient domestic demand, as noted by Premier Li Qiang during a recent state council meeting. Li told the meeting, according to Xinhua, Currently, the ⁠problem of insufficient ⁠domestic demand remains prominent, some industries and enterprises are facing increasing difficulties, and uncertainties in external environment are rising. He added, We should actively stabilise external demand, expand mutually beneficial international economic and trade cooperation and ⁠promote balanced trade development.

The National Bureau of Statistics (NBS) had previously cited extreme weather events, such as heavy rainfall and high temperatures, as factors that disrupted supply and demand in earlier months. These challenges follow a period where China posted an annualised growth rate of 4.3% in the three months to June, one of its lowest quarterly readings since Beijing began reporting official quarterly GDP data in the early 1990s, falling under the government’s target of 4.5% to 5%.

The government’s target of 5 percent annual growth remains a benchmark; the NBS reported that China’s economy grew at 5.3 percent year-over-year in the first six months of 2025. Julian Evans-Pritchard, head of China economics at Capital Economics, noted that the boost to manufacturing activity from AI capex [capital expenditure] continued to build and expects a modest uptick in growth over the rest of the year, supported by fiscal loosening.

Trade Representative Jamieson Greer indicated on Monday that the U.S. administration remains open to extending the current tariff truce deadline if the talks continue in a positive direction. The outcome of these negotiations, coupled with domestic fiscal intervention, will determine whether China can reverse the current sliding momentum in the final quarter of the year.