China's Factory Output Accelerates on Tech Boom as Consumption and Investment Falter

China's industrial production quickened in August, powered by an AI-driven technology boom, even as weak household spending and a worsening investment slump deepened concerns about the country's uneven recovery.

Factory output expanded 5.2% year-on-year, up from 4.5% in July and ahead of the 4.8% pace analysts had expected, data from the National Bureau of Statistics showed. Equipment manufacturing and high-tech industries drove the gains.

The picture was far weaker on the demand side. Retail sales, the main gauge of consumer activity, grew just 0.4%, slowing from 0.6% in July and missing forecasts of 0.8%. Fixed-asset investment fell 7.2% in the first eight months of the year, the steepest drop since April 2020.

Property investment tumbled 19.9% over the same period, with new home prices extending their decline, underscoring a housing market still mired in a prolonged downturn. Weak consumption and the property crisis dragged second-quarter GDP growth to 4.3%, the slowest in more than three years and below the lower bound of the government's 4.5%–5.0% annual target.

"Barring an unexpectedly strong September, GDP growth will likely remain sluggish in the third quarter," said Lynn Song, ING's Greater China chief economist. Oxford Economics trimmed its 2026 growth forecast by 0.1 percentage point to 4.6% and cut next year's projection to 4.3%, citing a more protracted property slump.

High-tech investment expanded 5.2% in the January–August period, in line with the global AI boom. Output of lithium-ion batteries jumped 57.2% and industrial robots 34.6% year-on-year. The government has been steering resources toward advanced manufacturing to reduce reliance on property and strengthen technological self-sufficiency, but the surge has yet to lift household incomes or job security. The urban surveyed unemployment rate edged up to 5.3% in August from 5.2% a month earlier.

Factory activity improved last month but remained in contraction, while services stayed sluggish. Weak domestic demand also weighed on credit growth, with new bank loans returning to positive territory but falling well short of forecasts after a record contraction in July. Four typhoons made landfall during August, disrupting manufacturing and logistics along the east coast.

"The external environment is complex and challenging, while domestic structural adjustment pressures persist, meaning sustained efforts are still needed to put the economy on a firmer growth trajectory," Fu Linghui, a spokesperson at the statistics bureau, told a briefing.

Beijing has responded with faster government bond issuance and expanded loan interest subsidies for small private firms and consumers, while the central bank has pledged additional support without signalling explicit cuts to policy rates or reserve requirements. Analysts at Barclays warned that policymakers' reluctance to deploy more forceful consumption-focused stimulus is likely to prolong the adjustment process.