China’s economy continued its rebound into the second half of 2020, but the pace of growth was slower than analysts expected, data released by the National Bureau of Statistics (NBS) on Friday showed. Retail sales were well below consensus last month, shrinking by 1.1 per cent from a year earlier, even as analysts had expected the first monthly gain of 2020 for this vital gauge of consumer spending in the world’s biggest market. Retail sales had dipped by 1.8 per cent in June and 2.8 per cent in May. July’s figure was behind expectations of 0.1 per cent growth, as per the consensus forecast of a Bloomberg poll of analysts. The contraction continues the persistent gap between the industrial and consumption engines of the economy. Analysts have consistently warned that supply in China is outstripping demand, as the government struggles to get households to spend their money. Industrial production, a measurement of manufacturing and mining output in the world’s second largest economy, continued on its four-month growth streak following a contraction in the first quarter, expanding by 4.8 per cent in July from a year earlier, the same pace as June. This was worse than the consensus forecast of a Bloomberg poll, which had forecast 5.2 per cent growth, but nonetheless hammers home the fact that China’s industrial engine has recovered from the coronavirus shutdown ahead of other parts of the economy. Within industrial production, manufacturing output grew by 6.0 per cent year-on-year, while mining shrank by 2.6 per cent. Fixed asset investment, a cumulative measurement of expenditure on infrastructure, property and capital goods in the year so far, fell by 1.6 per cent over the first seven months of 2020. But it is edging closer to growth, improving from the 3.1 per cent decline in the first six months of the year, and 6.3 per cent in the first five. July’s drop was in line with expectations. On a monthly basis, compared to a year earlier, fixed asset investment actually grew by 4.8 per cent, a product of a significant construction boom taking shape in China which has led to huge shipments of iron ore and coal and debt issuance in the private and public sectors. The official surveyed jobless rate for July was 5.7 per cent, the same as in June. However it is important to note that this is considered a relatively limited snapshot of the true employment picture as it does not account for the tens of millions of migrant workers which are most vulnerable to economic fluctuations. But all things considered, the picture is one of recovery, albeit a disjointed one. Demand continues to be an issue domestically, shown in weak – if improving – retail figures and also imports which fell by 1.4 per cent in July from a year earlier, even as exports soared beyond the top end of analysts’ expectations. Survey data released earlier in the month told a similar story of China’s economic rebound being powered by the traditional engines of growth: heavy industry, infrastructure projects, debt, investment and low-end exports. Latest data about world’s second largest economy In the latest indication of this, a planning blueprint published on Thursday showed that China will almost double the size of its high-speed rail network by 2035, adding 200,00km (125,000 miles) to the system. This point is emphasised by a 46.1 per cent increase in the production of excavating and shovelling equipment in July. “Looking ahead, we expect a renewed acceleration in infrastructure investment in the coming months as planned government bond issuance continues to ramp-up,” said Martin Rasmussen, China analyst at Capital Economics in a note. But strong risks remain for the Chinese economy, including high debt levels, the searing rivalry with the United States on trade, technology and finance, as well as pockets of coronavirus outbreaks popping up with growing regularity around the country. China’s top banking regulatory official said on Thursday that the country’s banks have to deal with 3.4 trillion yuan (US$489.5 billion) worth of non-performing loans in 2020 – flagging a massive risk for the banking system. Some structural problems have accumulated in the country for a long time, there are systemic and periodic contradictions intertwined Fu Linghui On Wednesday, respected economist and adviser to the central bank Yu Yongding warned that US sanctions over China’s treatment of Hong Kong and Xinjiang could lead to Chinese banks having assets seized overseas. “The financial sanctions could be done in a variety of forms, targeting banks or certain industries,” Yu said at a forum in Beijing, adding that the US could seize Chinese overseas assets if conflicts break out. “This possibility cannot be ruled out.” At a press conference in Beijing on Friday, NBS spokesman Fu Linghui also pointed to the “complex and severe” situation facing global trade and the world economy, as well as China’s internal imbalances. “Some structural problems have accumulated in the country for a long time, there are systemic and periodic contradictions intertwined,” Fu said.