There are different stages of cooling. But it would be fair to say China’s economy is going through a distinctly ‘chilly’ phase as the numbers start to stack up.

Business activity has dipped, retail sales have slowed and now investment has taken a hit, data from the National Bureau of Statistics revealed on Tuesday.

Fixed-asset investment, which is crucial for the world’s second-largest economy, dropped to a record low in the first seven months of the year. Between January and July, it expanded by just 5.5%.

“The activity and spending data for July all came in below consensus expectations despite surprisingly strong external demand,” economists at Capital Economics, a leading independent research firm, said. “This highlights the continued strong headwinds to domestic demand from slower credit growth.”

Despite missing market predictions, China’s retail sales jumped 8.8% last month compared to the same period in 2017. But that was still below an expected 9.1% increase and down from 9% in June even after cuts in value-added tax.

Business activity

Factory output did remain steady at 6%, which was in line with June’s figure, although it failed to match Bloomberg’s forecast of 6.3%. It also comes off the back of data highlighting disappointing business activity in July with the Caixin China General Services Index pointing to signs of stress.

To add to concerns, the gauge of new business from service providers fell to levels not seen since nearly three years ago.

“The sub-index of new business remained in expansionary territory but fell significantly – a clear sign that demand for services had worsened [sic] … while indicating that confidence had been shaken,” Zhengsheng Zhong, a director of Macroeconomic Analysis at CEBM Group, said in a statement.

Indeed, Tuesday’s statistical rollout by the NBS appears to be more evidence that the country’s economy is starting to run out of steam.

Beijing is in the process of realigning from “high-speed growth” to “high-quality growth,” fueled by the “Made in China 2025”  high-tech program. Expanding the service sector is another key component.

At the same time, the war on debt has pushed up borrowing costs, triggering a rising number of defaults, while lurking in the background is the trade brawl with the United States.

“The Chinese economy will get worse before getting better, and it [will take] several months to turn around,” Ting Lu, the chief China economist at Nomura investment bank, said in a research note.

‘Credit easing’

“Beijing will step up credit easing and fiscal measures to deliver a recovery and prevent financial troubles such as a rise of bond defaults,” Lu added.

Last month, the powerful Politburo announced plans to relax the vise-like grip on borrowing to stimulate the economy with increased spending on infrastructure projects expected in the second half of the year.

But this could simply exacerbate already excessive debt levels, according to the International Monetary Fund, which has warned President Xi Jinping’s administration to resist another stimulus binge.

“Directors [have] stressed the importance of staying the course on reining in credit growth,” the IMF stated.

In the numbers game, Xi and his economic brains trust will have to walk a very fine line … of credit.