By Ulf Bergman
Chinese economic data continue to paint a mixed picture, with recent months offering both optimism and pessimism. This week, the members of the latter camp got yet another serving of soft economic data, which added to their case for a pessimistic outlook for Chinese growth.
A combination of weaker-than-expected industrial production, retail sales and fixed asset investment in July suggests that the world’s second-largest economy may fall somewhat short of the official growth target for the year.
Key Economic Indicators Fell Short of Expectations in July
Last month, Chinese industrial production rose by 4.5 per cent compared to the same period in 2025. While many countries would be keen to replicate such expansion, it was, by Chinese standards, a modest reading. Furthermore, it failed to meet the consensus market expectation, which, at 5.0 per cent, was closer to June’s reading of 5.3 per cent.
The softer growth, after two months of positive momentum, was due to weakness across much of the economy outside of the technology sector. The lower-than-expected growth suggests that the recovery in May and June may prove to be outliers, as domestic and international headwinds make a return to first-quarter levels unlikely.
The split between the tech sector and the rest of industry was equally evident in the data on fixed asset investments. Year-to-date, compared with the same period last year, investments have declined by 6.7 per cent. The lower-than-expected figure highlighted worsening conditions and continued the downward trend that began in April. Persistent weakness in the real estate sector remained the largest contributor, but infrastructure and manufacturing investments also provided headwinds.
After some optimism during the early stages of the year, retail sales growth in China has been lacklustre in recent months. While June surprised on the upside, last month did not follow suit, with any positive momentum failing to materialise. Instead, retail sales grew by a meagre 0.6 per cent year-on-year, falling well short of the 1.5 per cent consensus projection.
The weak start to the second half of the year has put Beijing’s official growth target at risk. Given the weak domestic demand and the headwinds for industrial production, there is an increasing probability that this year’s GDP expansion will fall below the lower end of the desired growth interval of 4.5 to 5.0 per cent. While the expansion during the first six months of the year provides some buffer for the second half of the year, should headwinds persist and push year-on-year growth below 4.3 per cent, the official target will slip out of reach.
The big question is whether the Chinese leadership considers the weakness significant enough to warrant a new round of economic stimulus or if further injections are seen as unnecessary. Following the latest batch of data, the Chinese Premier Li Qiang called for more to be done to support the economy. However, he stopped short of announcing any new measures. A faster implementation of existing policies is a more likely course of action at the moment. It is also worth noting that recent adverse weather conditions may have contributed to last month’s weakness, which may have prompted the Chinese leadership to hold fire on new initiatives. Still, developments in the coming months may force Beijing to change its calculus, should economic data remain under more pressure than expected.
Implications for Dry Bulk Shipping
Dry bulk exports bound for China grew by 4.1 per cent during the first half of the year, compared with the same period in the past year, according to data from Signal Ocean. The aggregate for the six-month period was also nearly two per cent higher than in the first half of 2024. While the second half of the year has begun with its habitual seasonal weakness, volumes during the past month were still marginally higher than last year.
Normally, seaborne dry bulk volumes heading for Chinese ports are higher in the second half of the year than in the preceding six months. After the traditional July dip, monthly volumes tend to trend higher for the rest of the year. Given China’s dominance in the dry bulk sphere, with shipments bound for the country accounting for around 40 per cent of global volumes, rising demand for seaborne transport during the rest of the year contributes to global volumes. Hence, any weakness in China's appetite for imported commodities could significantly impact global demand for raw materials and seaborne freight.
Still, should Chinese economic data continue to disappoint, dry bulk demand is unlikely to suffer sharply as a result. In recent years, GDP growth has been a poor leading indicator for dry bulk imports. The worst-case scenario, should economic growth continue to face headwinds, should be moderation rather than collapse.
The leading imported dry bulk commodities, iron ore, coal and bauxite, should see seaborne volumes stage a seasonal recovery over the coming months, even if economic data continue to disappoint. This development should support freight rates in the larger segments, with capesizes likely to benefit the most. By contrast, demand from the grains and oilseed trade may, as in recent years, continue to disappoint in the second half of the year. Earlier statements by the US administration, subsequently disputed by Beijing, that China had committed to buying at least seventeen billion dollars’ worth of American grains and soybeans annually over the next three years highlight the uncertain outlook for Chinese agricultural imports in the second half of the year. Hence, the fortunes of the panamax and supramax segments may, to some extent at least, rest on how relations between Beijing and Washington evolve.
Data source: Ocean Analytics