China’s August economic activity and macroeconomic outlook Report Interpretation

Overview

This macro update assesses China’s August activity data. Nomura argues that stronger export-linked industrial production obscured deteriorating domestic demand, investment and property conditions, leaving the economy highly imbalanced and its GDP outlook below market consensus.

Core views

Nomura characterizes the August data as mixed but collectively indicative of a highly imbalanced economy. Industrial production (IP) growth accelerated to 5.2% year on year from 4.5% in July, exceeding the 4.8% consensus and Nomura’s 4.7% forecast. The firm attributes the rebound to 25.0% export growth, easing supply disruptions as oil imports recovered, and a less adverse weather effect. Seasonally adjusted month-on-month IP growth rose to 0.54% from 0.11%. Manufacturing output growth increased to 6.1%, mining improved to -1.4%, and export-delivered industrial value growth rose to 11.1% from 10.4%. The production rebound was uneven across industries. AI-related integrated-circuit output remained strong at 20.6% year on year, although IC export growth fell to -8.0% from 1.9%. In contrast, PC and smartphone output declines deepened to -25.6% and -22.3%, respectively; smartphone export volume was still down 13.6%. Auto output fell 2.7%, solar-panel output fell 12.9% amid the anti-involution campaign, and construction-linked crude-steel and cement output declined 3.7% and 11.7%. Oil imports rose 6.2% month on month to 9.0mn bpd, though remained 23.4% below a year earlier. Lower implied import prices, at USD81.7/bbl versus USD87.0/bbl in July, and easing disruptions helped stabilize oil-related industrial activity; crude-oil-processing output contraction narrowed to 6.9% from 15.8%. Domestic consumption weakened further. Nominal retail-sales growth slowed to 0.4% year on year from 0.6%, below the 0.8% consensus and close to Nomura’s 0.5% estimate. Using August CPI inflation of 0.8% as a proxy deflator, Nomura calculates real retail-sales growth at -0.4%, versus 0.1% in July; seasonally adjusted sales fell 0.13% month on month. The report links the broad weakness to poor consumer sentiment and payback from the scaled-back trade-in programme, notwithstanding price support for consumer electronics from higher chip prices. Autos were a major drag: value sales fell 18.5% year on year, while CPCA passenger-car volumes fell 23.7%, alongside renewed automaker and dealer price cuts. Catering growth softened to 1.1%, and sales at large designated restaurants fell 0.7%, which Nomura associates with weak household purchasing power and sentiment amid the property crisis. Home appliances, furniture and sports-and-entertainment sales remained subdued, while gold and jewellery sales fell 17.5%. Communication-appliance sales rose 27.3% and office-appliance sales rose 5.8%, but the report attributes this strength in part to price effects amid rising chip prices rather than a broad consumption recovery. Investment conditions remained exceptionally weak. Monthly fixed-asset-investment growth improved only slightly to -10.6% year on year from -12.8%, marking five consecutive months of contraction; year-to-date FAI growth deteriorated to -7.2% from -6.7%. The marginal monthly improvement was concentrated in property, while manufacturing investment fell 6.1% from a 4.4% decline and infrastructure investment remained down 14.8%. Nomura argues that weak manufacturing FAI despite robust exports supports its view that policy-driven capacity constraints are overriding external-demand signals. Motor-vehicle investment remained negative at -10.7%, electrical-machinery-and-equipment investment fell to -3.1% from growth of 2.5%, and private-enterprise FAI stayed deeply depressed at -14.5%, compared with -5.8% for state-controlled entities. The property downturn continued to worsen. Property investment remained down 25.4% year on year, new-home sales fell 14.7% by floor space and 12.1% by value, and declines in starts, completions and property-investment funding widened to 31.0%, 28.4% and 26.7%, respectively. Average new-home prices fell 0.17% month on month and existing-home prices fell 0.31%; only three of 70 cities recorded an increase in existing-home prices, down from five in July. Tier-1-city price gains slowed to 0.08%, while tier-2 and tier-3/4 declines worsened. Nomura notes that the Iceberg index, based on the lowest listing prices, fell 0.60% in August and showed the same decline in the first two weeks of September, implying limited near-term upside for home prices. The report says Beijing has become more concerned about growth prospects, citing NDRC efforts to accelerate investment spending, the MOF’s reinforcement of its interest-subsidy programme, additional local property easing and moderate credit easing for homebuyers and developers. However, Nomura expects the boost to be moderate, given worsening fiscal contraction. It maintains GDP growth forecasts of 4.3% for Q3 and 4.5% for Q4, versus Q3 consensus of 4.5%, expects the Street to reduce what it considers overly optimistic Q3 growth forecasts, and expects further supportive measures later in 2026—but likely on a limited scale.

Analysis framework

Nomura compares August year-on-year and seasonally adjusted month-on-month activity data with July readings, market consensus and its own forecasts. It then traces the divergence between export-supported production and weak domestic demand through sector-level industrial, retail, investment and property indicators, using CPI to estimate real retail-sales growth and the Iceberg index as a leading signal for housing prices.

Methodology notes

• Industry AnalysisVolume-price decomposition

  Nomura uses CPI inflation as a proxy deflator to distinguish real retail-sales growth from nominal growth and separates volume and price effects in consumer electronics and autos.

  This approach helps show that stronger nominal sales in some electronics categories reflected higher prices from chip costs rather than broad demand strength.

• Cycle and Business ConditionsBusiness-Cycle Inflection Analysis

  The report compares sequential changes in activity, property prices and the Iceberg index to assess whether domestic conditions are stabilizing or worsening.

  Nomura uses these direction-of-change indicators to conclude that the property sector has limited near-term upside and that domestic weakness remains entrenched.

Key data

• Industrial production growth5.2% y-o-y in AugustUp from 4.5% in July; above 4.8% consensus and Nomura’s 4.7% forecast.
• Retail sales growth0.4% y-o-y in AugustDown from 0.6% in July; below 0.8% consensus. Nomura estimates real growth at -0.4% using CPI as a proxy deflator.
• Fixed-asset investment growth-10.6% y-o-y in AugustImproved from -12.8% in July but represented a fifth consecutive monthly contraction; year-to-date growth was -7.2%.
• Property investment growth-25.4% y-o-y in AugustSlightly less negative than -27.5% in July, while sales, starts, completions and funding worsened.
• Existing-home prices-0.31% m-o-m in AugustWorsened from -0.29% in July; only three of 70 cities recorded an increase.
• Nomura GDP forecast4.3% for Q3 and 4.5% for Q4Maintained below-consensus forecasts; Q3 market consensus was 4.5%.

Impact & implications

Nomura’s central implication is that export-driven production strength does not represent a broad domestic recovery. Weak consumption, contractionary investment, persistent private-sector weakness and a deteriorating property market are expected to keep growth below consensus, while recent policy easing is likely to provide only a moderate boost.

Risks

• The report highlights worsening fiscal contraction as a constraint on growth and on the effectiveness of policy support.
• Weak consumer sentiment and household purchasing power remain risks to consumption.
• The continuing property downturn, including falling sales, funding and home prices, remains a major macroeconomic risk.
• Policy-driven capacity constraints may continue to suppress manufacturing investment despite strong exports.

What to watch

• The scale and timing of any further Beijing support measures later in 2026.
• Whether fiscal contraction eases and investment spending accelerates following NDRC and MOF measures.
• The trajectory of retail sales, especially autos and other discretionary categories.
• Property sales, starts, developer funding and the Iceberg index for evidence of housing-market stabilization.
• Whether export strength continues to support industrial production despite weak domestic demand.