New growth drivers gain ground amid transition

China's shift toward new growth drivers gathered pace in July, with advanced manufacturing, technology-intensive exports and services consumption providing growing support for economic activity, officials and experts said.

They noted that new growth drivers contributed over half of industrial output growth in the first seven months of the year. Retail sales of services continued to outpace those of goods and external demand remained resilient, bolstering prospects for continued economic expansion in the third quarter.

The foundation for sustained growth, however, remained to be consolidated, as a deepening contraction in fixed-asset investment and slowing retail sales growth could weigh on the economy, they added, calling for more forceful policy support.

The comments came as fresh data released by the National Bureau of Statistics on Monday showed that the country's industrial output rose 4.5 percent year-on-year in July, following a 5.3 percent rise in June.

Notably, the high-tech and equipment manufacturing sectors maintained robust growth in July, with value-added output rising 16.9 percent and 12.3 percent year-on-year, respectively, the bureau said.

Wang Guanhua, a spokeswoman for the bureau, said at a news conference in Beijing that new growth drivers contributed an estimated 50.9 percent to industrial output growth in the first seven months of the year, up 3 percentage points from the first half.

Zhu Feng, China chief economist at JPMorgan, said that China has made solid progress in upgrading its manufacturing sector, with exports, industrial output and investment all pointing to stronger competitiveness in advanced manufacturing.

Companies at the forefront of this shift are already posting robust growth.

Chinese high-end processor designer Hygon Information Technology Co said in its interim report that demand for domestically developed high-end chips continued to rise in the first half of the year, with revenue surging 66.5 percent year-on-year to 9.1 billion yuan ($1.35 billion).

Meanwhile, the consumption mix continued to improve as spending shifted further toward services. The share of services in per capita spending rose 0.2 percentage point year-on-year in the first half, while retail sales of services grew 5 percent in the first seven months, outpacing goods sales, the NBS said.

In contrast to solid growth in industrial output and services consumption, growth in retail sales of goods slowed and the contraction in fixed-asset investment deepened, with the property sector remaining the main drag on investment, experts said.

Zhu from JPMorgan said a major challenge for China's economy is the pace of its growth driver transition.

Retail sales, a key gauge of consumer spending, grew 0.6 percent year-on-year in July, slowing from a 1 percent rise in June, the data showed.

Fixed-asset investment declined 6.7 percent during the January-July period from a year earlier, deepening from a 5.7 percent drop in the first half, according to the NBS.

Yin Yanlin, deputy director of the Committee on Economic Affairs of the 14th National Committee of the Chinese People's Political Consultative Conference, urged policymakers to strengthen countercyclical adjustments and introduce additional measures, including issuing more treasury bonds if needed, to bolster investment, thereby smoothing the transition to new growth drivers.

"Policymakers should capitalize on easing imported inflation pressures to cut the reserve requirement ratio and policy rates when appropriate," Yin added.

In the latest move, the National Development and Reform Commission, China's top economic planner, said on Monday it will accelerate the rollout of new policy-based financial instruments for 2026 and step up support for private investment projects.

Lynn Song, chief economist for China at Dutch bank ING, said that with fiscal spending and the deployment of bond proceeds gathering pace, "investment activity could begin to recover in the coming months".

For multinational companies, China's shift toward innovation-led growth is reshaping long-term investment strategies.

Rogier Janssens, president of Merck China, said: "China's industrial ecosystem is unmatched. We are expanding our production and research and development footprint because the fundamentals support long-term growth across all three of our business lines — healthcare, life sciences and electronics."

Contact the writers at zhangchenxu@chinadaily.com.cn