July's economic indicators showed an overall soft performance, with the computer and communication sector emerging as a notable standout. The industrial value-added output grew by 4.5% year-on-year in July. From a sectoral breakdown, the cumulative year-on-year growth for mining in the first seven months stood at 2.5%, manufacturing at 5.6%, public utilities at 5.4%, and high-tech industries at a robust 13.8%.

Retail sales of consumer goods saw a modest 0.6% year-on-year increase in July. Excluding automobiles, retail sales grew by a more substantial 2.5%. Service consumption recorded a cumulative year-on-year growth of 5.0%. In the investment arena, fixed asset investment (FAI) fell by 6.7% cumulatively in the January-July period, while private FAI declined by 9.4%. Sector-wise, manufacturing investment contracted by 1.7% cumulatively, infrastructure investment decreased by 4.1%, and real estate development investment plummeted by 19.2%.

Within the property sector, residential investment growth dropped by 19.1% in the first seven months. Commercial housing sales area fell by 11.8%, and total sales value declined by 13.1%. In July 2026, new home prices in 70 major cities fell 3.4% year-on-year, a slight improvement of 0.1 percentage points from June, while second-hand home prices dropped 5.4%, also improving by 0.2 percentage points from the previous month.

The July data revealed significant internal divergence. Compared to June, both the monthly industrial output growth and retail sales growth decelerated, while the cumulative FAI contraction widened. All three metrics also fell short of Wind consensus expectations. The overall picture points to a continuation of weak demand versus relatively stronger supply, with clear structural differentiation: midstream manufacturing fared better than other industries, equipment purchases maintained high growth within FAI, and service consumption significantly outperformed goods consumption in retail.

Notably, the influence of AI and technology development on the economy is starting to show in the sector-level data. The computer and communication industry saw its value-added output surge 19.1% year-on-year in July, and 15.4% cumulatively for the first seven months, far exceeding the overall industrial growth rate of 4.5% and 5.3%, respectively. FAI in this sector grew 7.8% cumulatively, sharply contrasting with the 1.7% decline in overall manufacturing investment. In retail, sales of communication equipment grew 20.4% year-on-year in July and 15.1% cumulatively, vastly outperforming the -3.8% and -1.4% figures for total retail sales above a designated size.

The economy is shifting towards new and higher-quality sectors driven by technology, but stabilizing growth this year will likely require more attention to traditional economic segments. We believe July's weak data can be partially attributed to temporary factors such as high temperatures and flooding. However, looking at the medium-to-long-term internal and external environment, a clear "dual structure" is emerging. On one side, emerging industries led by AI development are growing rapidly, characterized by high financing, high investment, and high inflation. On the other side, traditional sectors—including downstream consumption, light industry, and raw material processing—are experiencing low financing, low investment, and low inflation.

The significant differences in supply chain length, employment scale, and economic reach between these two segments mean that rapid growth in a few sectors does not broadly benefit the majority of the population. This dynamic contributes to a cooler economic sentiment and weak consumer spending. Domestically, this process is compounded by a sluggish real estate chain, from investment and sales to post-cycle consumption, exacerbating the weakness in domestic demand.

Given that GDP growth in the second half of 2025 is expected to be slightly lower, creating a favorable base effect, current macro policies remain restrained. However, with the second quarter's actual GDP growth of 4.3% already below the annual target, and July's data showing further declines from June, we believe there is an objective need for additional growth-stabilizing policy measures in the second half of the year. Policy support may need to specifically address the underperformance of traditional economic sectors.