Economy

China’s Economy Slumps: How Beijing Plans to Revive Growth Amidst Slowing Factory Output and Retail Sales

China‘s factory output slowed, retail sales fell. Beijing eyes stimulus to prevent a sharp economic slowdown.

September 15, 2025, 8:45 AM

The red Chinese flag flutters in the wind next to a modern stone building and a skyscraper

The national flag of China flies on a pole, with a modern skyscraper visible behind it, symbolizing the country's national presence in an urban environment. By MDL.

Executive Summary

China’s factory output growth slowed to a one-year low and retail sales fell to a nine-month low in August, indicating a broad-based economic deceleration.

The significant slowdown is increasing pressure on Beijing to implement further fiscal and monetary stimulus, including anticipated interest rate and reserve requirement ratio cuts, to meet its “around 5%” annual growth target.

Weak domestic demand, a protracted property crisis, a challenging job market with rising unemployment, and the impact of U.S. trade policy are key factors contributing to China’s economic struggles.

The Story So Far

China’s current economic slowdown, evidenced by weakening factory output and retail sales, is primarily driven by significant domestic challenges including a protracted property crisis exacerbated by a government crackdown on speculation and heavy debt, alongside weak consumer demand and a challenging job market. These internal pressures are compelling Beijing to implement further stimulus measures to achieve its annual growth target of “around 5%.”

Why This Matters

China’s significant slowdown in factory output and retail sales, exacerbated by a protracted property crisis and weak domestic demand, places intense pressure on Beijing to deploy substantial monetary and fiscal stimulus, including potential interest rate and reserve requirement ratio cuts, to meet its annual growth targets and prevent a sharper economic deceleration.

Who Thinks What?

Policymakers are expected to deploy additional near-term fiscal and monetary support, including potential interest rate and reserve requirement ratio cuts, to achieve their annual growth target and are encouraging trade diversification to offset U.S. trade policy impacts.

Analysts anticipate a high possibility of another 10-basis-point interest rate cut and a 50-basis-point reserve requirement ratio cut in the coming weeks to stimulate the economy.

Chinese households and businesses are tightening their purse strings and experiencing faltering confidence, contributing to weak domestic demand and a challenging job market, exacerbated by the protracted property crisis.

China’s factory output growth slowed to its weakest pace in a year in August, while retail sales fell to a nine-month low, placing renewed pressure on Beijing to implement further stimulus measures to prevent a sharp slowdown in the nation’s $19 trillion economy. The latest economic data indicates a broad-based deceleration, prompting expectations for additional policy support.

Industrial output increased 5.2% year-on-year in August, marking the lowest reading in a year and a decline from the 5.7% rise observed in July. Concurrently, retail sales expanded 3.4% in August, representing the slowest pace since last November and cooling from a 3.7% increase in the previous month.

Policymakers are expected to deploy additional near-term fiscal support to achieve their annual growth target of “around 5%.” This urgency is amplified by manufacturers awaiting more clarity on a U.S. trade deal, coupled with domestic demand being curbed by a challenging job market and a protracted property crisis.

Despite a strong start to the year, the broader slowdown suggests that more policy support is needed to ensure a robust economic finish. Analysts are anticipating a high possibility of another 10-basis-point interest rate cut and a 50-basis-point reserve requirement ratio (RRR) cut in the coming weeks.

Domestic Economic Headwinds

Weak domestic demand, alongside a government crackdown on speculation and heavy debt, continues to drag the property sector into a prolonged slump. New home prices declined 0.3% in August from the previous month and 2.5% on an annual basis.

Chinese households have tightened their purse strings, and business confidence has faltered, dampening the job market. The unemployment rate edged up to 5.3% in August, from 5.2% a month prior and 5.0% in June, as employers face pressure from aggressive price cuts.

Manufacturing activity has also been affected by extreme weather conditions over the summer months. Fixed asset investment grew only 0.5% in the first eight months compared to the same period last year, significantly below the expected 1.4% increase.

Trade Diversification Efforts

Authorities are encouraging manufacturers to find new markets to offset the impact of U.S. trade policy. Recent data suggests some success in diverting U.S.-bound shipments to Southeast Asia, Africa, and Latin America.

However, the persistent drag from the property crisis continues to offset these efforts to stabilize the economy. Beijing has affirmed its commitment to making full use of fiscal and monetary policies to help achieve its annual economic targets.