Chinese retail sales rose 2.5 percent on the year in July after growth of 3.1 percent in June, well below the consensus forecast for an increase of 4.2 percent. Sales rose 2.3 percent on the year in urban areas and 3.8 percent in rural areas. In month-over-month terms, sales fell 0.06 percent in July after increasing 0.23 percent in June.

Retail sales and other key activity data published today show weaker year-over-year growth and near-zero month-over-month growth in July. This further loss of momentum in China's economic recovery is in line with PMI survey data and the assessment of senior China's leadership that the economy is facing"difficulties and challenges". Along with weak inflation data published last week, today's activity data may strengthen the case for some policy measures to support stronger demand.

With today's activity data weaker than expected, the China ECDI has fallen from 14 to minus 71 and the ECDI-P has dropped from 20 to minus 100, indicating that recent Chinese data in sum are now coming in far below consensus forecasts after recent outperformance.

After rising 3.1 percent in June, year-over-year sales in July are expected to rise 4.2 percent. Last year's lockdowns have been greatly distorting sales comparisons.

Retail Sales measure goods that are sold to the consumer or end-user, generally in small quantities and in the state in which they were purchased by the retailer. China's retail sales are reported monthly. The critical value is the change from the same month in the previous year.

Retail sales tend to have a muted impact because the Chinese economy is not heavily reliant on consumer spending. However, the government is trying to stimulate consumer spending to give the economy more balance. To this end, the government put into place a basket of stimulus measures, including government subsidies and tax breaks for home appliances and cars, to expand consumption to sustain the economic growth, which was slowed by a slump in exports amid the global economic downturn.