Tech boom powers China's factories but economic imbalances deepen as consumption slows

BEIJING, Sept 15 (Reuters) - China's industrial sector showed renewed strength in August as the AI-driven tech boom fuelled factory output, though sluggish consumption and a worsening investment slump reinforced concerns over deepening economic imbalances.

Tuesday's data highlighted a familiar fault line in the world's second-largest ‌economy, where resilient manufacturing and exports are sustaining growth even as weak household spending and a property market downturn weigh on domestic demand. The divergence ‌is likely to intensify pressure on Beijing to roll out more support measures as policymakers seek a more balanced recovery.

Industrial output grew 5.2% from a year earlier in August, quickening from a 4.5% increase in July ​and beating expectations for a 4.8% rise, figures released by the National Bureau of Statistics showed. Strong expansion in equipment and high-tech manufacturing underpinned the production upturn.

Retail sales, a gauge of consumer activity, rose 0.4%, slowing from a 0.6% gain in July and below an expected 0.8% rise.

Weak consumption and the real estate market crisis dragged second-quarter gross domestic product growth to 4.3%, the slowest pace in more than three years and below the lower end of China'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 lowered its 2026 growth forecast by 0.1 percentage point to 4.7% and cut next year's to 4.3%, from 4.6%, "reflecting a more prolonged property downturn which is likely to keep growth subdued despite stronger public investment," senior economist Sheana Yue said.

The data barely moved China's markets, ⁠leaving the key stock benchmarks down roughly 0.3% while the yuan weakened slightly against the dollar.

The latest data underscored the scale of the challenge facing policymakers as businesses remain reluctant to commit new capital and the property market continues to sap consumption and restrain growth.

Fixed-asset investment, which includes infrastructure and property investment, declined 7.2% in the first eight months, marking the steepest ​drop ​since April 2020.

Property investment dived 19.9% in the first eight months from the same period last ​year, and new home prices extended declines from the previous month, ‌signalling a housing market still trapped in a prolonged downturn.

Against that backdrop, strong exports driven by AI infrastructure spending and demand for advanced technology products are providing a critical buffer for growth.