Fresh Data Shows China’s Economy Stuck in Doldrums

Even with those new measures, data released by China’s National Bureau of Statistics showed fixed-asset investment expanded by 3.6% in the January-to-July period when compared with the year-earlier period, slowing from the 3.9% increase seen in the first half of 2024. Property investment fell 10.2% on year over the same stretch.

One bright spot was consumption. Retail sales, a key metric of consumer spending, rose 2.7% in July from a year earlier, topping economists’ estimates and improving on June’s 2% year-over-year increase, the data showed.

“The effect of China’s pro-investment policies is fading, but that of pro-consumption policies is rising gradually,” said Bruce Pang, a China economist at Jones Lang LaSalle. Pang said he would be watching in the coming months to see if the acceleration in retail sales growth can offset declines in investment growth.

Others were less sanguine, noting the increase in consumers’ willingness to spend on dining out and entertainment, while pulling back on bigger-ticket items such as cars and jewelry.

“Households appear to be cutting back on discretionary consumption, and a general environment of cost-cutting is likely impacting spending decisions,” said Lynn Song, chief China economist at ING.

However, the persistent pain point of China’s economy—its ailing property sector—remains a concern. Home prices are falling at an accelerating rate. Fresh data on Thursday showed new-home prices in 70 major cities falling 5.3% in July compared with a year earlier—faster than the 4.9% decline in June. The price slump eased slightly when measured on a month-over-month basis.

New-home sales by value kept plunging, dropping 25.9% in July from a year earlier, recovering marginally from June.

Haibin Zhu, chief China economist at J.P. Morgan, said he doesn’t expect the decline in property investment to bottom out until 2026. As a result, he said, his team had already lowered its forecast for China’s gross domestic product this year to 4.7%, from an earlier estimate of 5.2%, after seeing disappointing numbers for June. Other investment banks, including Goldman Sachs and Barclays, have made similar downgrades.

China’s top leadership said in March that it is targeting an official growth rate this year of about 5%.

In recent months, they have taken steps to clear out the country’s housing backlog, which remains elevated in the millions of completed but unsold units, and which many economists regard as a key obstacle to the economic recovery.

In May, authorities announced a rescue package that included a so-called relending program under the auspices of the central bank that will provide up to $42 billion in funding to Chinese banks to lend to state-owned firms, which would then buy up finished but unsold units and persuade wary prospective home buyers to re-enter the market.

But by the end of June, only 4% of that quota had been used. Economists say that banks lack any incentive to tap the funding and lend to the state-owned companies.

Beijing, meanwhile, has signaled little appetite for a bazooka-style fiscal stimulus to energize the economy, with local governments grappling with mammoth debts and plummeting land-sale revenues.

In recent weeks, the International Monetary Fund pitched Beijing on a housing rescue plan that would require the central government to deploy roughly $1 trillion in funding to deliver presold but unfinished projects or offer compensation to home buyers.

But Chinese authorities publicly rejected the plan, citing concerns that doing so would raise expectations for future government bailouts.

The housing crisis has eroded Chinese households’ balance sheets and discouraged many from spending. Corporations, too, slowed borrowing as they grew pessimistic about the country’s near-term economic growth.

Technology giant Tencent Holdings, one of China’s biggest companies, said in its quarterly earnings report on Wednesday that its earnings took a hit from what it called “slow consumption spending, alongside a decline in consumer loan services revenue.” President Martin Lau said users were spending less on average in their transactions, which he characterized as “a clear demonstration of the fact that consumers are getting much more budget conscious.”

In July, loans to China’s real economy—that is, excluding those handed out to financial institutions—contracted for the first time in 19 years, sparking concerns of a Japanese-style recession in which households and businesses hold back on spending as they pay down debts.

Separately on Thursday, official data showed China’s industrial output expanding 5.1% in July from a year earlier, slower than June’s 5.3% gain. The country’s headline measure of joblessness, the so-called urban unemployment rate, worsened to 5.2% in July, from June’s 5.0%.

Xiao Xiao and Zhao Yueling contributed to this article.

Write to Rebecca Feng at rebecca.feng@wsj.com