BEIJING—As China girds for an escalating trade fight with the U.S., it is facing increasing trouble on the home front from a slowing economy.
Spending on so-called fixed assets such as factory machinery and public works projects cooled to the lowest point in nearly two decades, the government reported Tuesday.
Other data also pointed to economic challenges. Retail sales grew, but not as sharply as analysts had expected. And unemployment ticked up to 5.1% last month, from 4.8% in June, the National Bureau of Statistics said.
Taken together, the data suggest that China can’t go toe-to-toe in retaliating against U.S. trade levies, said Shuang Ding, an economist with Standard Chartered Bank in Hong Kong.
“China should avoid adopting a direct, confrontational approach in the trade fight with the U.S. and focus on strengthening its economy first,” Mr. Ding said.
The U.S. has imposed 25% tariffs on $34 billion of Chinese imports, which is set to increase to $50 billion of goods on Aug. 23, as it seeks to correct a trade imbalance it says stems from unfair practices. China has defended its policies and imposed counter tariffs on U.S. goods.
On Tuesday, China brought U.S. tariffs on imported solar products to the World Trade Organization, the Commerce Ministry said, adding that the U.S. measures harm China’s interests and challenge trade rules.
“Such abuse of trade remedy measures not only harms China’s legitimate interests, but also affects the seriousness and authority of the WTO rules,” the ministry said in a statement.
Analysts have given the U.S. an edge so far, pointing to its solid economy. By comparison, China is showing signs of strain.
Spending on fixed-asset investments in China’s nonrural areas grew 5.5% in the January-July period from a year earlier, the Bureau of Statistics said.
The figure matched a record low in 1999, according to data tracker Wind Information, and is down significantly from the 8.3% growth recorded for the first seven months of 2017. It was also slower than the 6% increase recorded in the January-June period and undershot economists’ expectations.
The slowdown in fixed-asset investment reflects Beijing’s campaign to curb borrowings of local governments and companies in an effort to contain financial risks, such as bad loans and defaults.
But that strategy appears to have contributed to the economic cooling trend. Investment, a key growth engine for China, contributed more than a third of China’s economic growth rate last year.
Retail sales, meanwhile, climbed 8.8% in July from a year earlier, slowing from a 9.0% year-over-year increase in June and lower than economists’ forecast of 9.0% growth.
One notable exception is China’s residential property market, which is still booming.
The value of homes sold for the January-July period rose 16.2% from a year earlier, official data showed Tuesday. That compared with a 14.8% gain for the first half of the year.
Property investment, including commercial and residential real estate, for the first seven months of the year rose 10.2% from the previous year. That compared with a 9.7% increase for the January-June period.
Most of the growth was in so-called second- and third-tier cities that have looser property controls. Major cities such as Beijing and Shanghai imposed homebuying restrictions, such as raising down-payment ratios and capping the number of home purchases, to prevent the market from overheating.
At a news media briefing on the new trade data Tuesday, statistics bureau spokeswoman Liu Aihua described the growth so far this year as “overall steady,” acknowledging the impact of U.S.-China trade frictions on the Chinese and global economy.
But infrastructure investment will probably stabilize and accelerate in the second half of the year, Ms. Liu said, as the government moves to pump up the economy in the face of a protracted trade conflict.
Beijing is encouraging banks to open the lending spigots as it seeks to shore up its economy for what could be a long trade fight with the U.S.
‘China should avoid adopting a direct, confrontational approach in the trade fight with the U.S. and focus on strengthening its economy first.’
The China Banking and Insurance Regulatory Commission on Saturday reported that new loans by Chinese banks totaled 1.45 trillion yuan ($210.40 billion) in July, up 75%, or 623.7 billion yuan, from the same period last year, according to preliminary statistics.
The regulator also said new lending to infrastructure projects stood at 172.4 billion yuan in July, up 37% from June.
So-called shadow lending, which includes loans by trust companies and other nontraditional lenders, dropped 2.3% in July from a year earlier, according to estimates by Macquarie Capital, based on central-bank data released Monday.
While off-balance-sheet lending could continue to fall in the coming months, the government may ease up on its deleveraging campaign to ensure economic growth, said Macquarie economist Larry Hu.
Apart from pumping money through banks, there is also room for the Finance Ministry to loosen fiscal policy through tax cuts and increased government spending to spur investment and consumption, said Mr. Ding of Standard Chartered.
He said he expects China’s gross domestic product growth to slow to 6.5% and 6.4% in the third and fourth quarters, respectively, suggesting Beijing is still on track to deliver a growth target of about 6.5% this year.
—Liyan Qi, Grace Zhu and Dominique Fong