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BEIJING—A swath of economic activity—from factory output to investment and retail sales—slowed last month, reflecting renewed weakness in China's economy as the effects of earlier government stimulus wane.

Industrial production, long a rough proxy for growth in the world's second-largest economy, rose 6.0% in July from a year earlier, according to government data released Friday. The pace was slower than the 6.2% growth recorded in June—a rate economists expected would be sustained in July.

Investment in factories, buildings and other fixed assets in nonrural areas climbed 8.1% on year in the January-July period, decelerating from the 9% increase in the first six months of the year and again lower than the 8.9% predicted by economists.

"The Chinese economy is definitely on the downward trend. That hasn't changed," said Ma Xiaoping, an economist with HSBC.

Ms. Ma said demand from both home and abroad is still weak and investors are downbeat about China's economic outlook.

July's snapshot of China's economy shows how broad the slowdown is becoming and how vexing that is becoming for the government. Growth of private investment, which accounts for around 60% of total fixed-asset investment, slipped to a record low of 2.1% in the first seven months, shrugging off recent official efforts to slash red tape and reduce market barriers to encourage more spending.

As companies hold off spending, government officials and economists have warned that China is falling into a liquidity trap—when investors hoard cash rather than invest despite government moves to put more money into the economy.

Sheng Laiyun, a spokesman for the National Bureau of Statistics, acknowledged at a briefing Friday that many private businesses are reluctant to expand amid cooling growth.

"Economic performance in July was indeed slower as the domestic and global economies are still undergoing deep adjustment," Mr. Sheng said at a briefing. He said the government still has room to expand infrastructure investment in the coming months to bolster growth.

Meanwhile, retail sales, which has been a bright spot in the economy, also showed signs of softness, growing 10.2% in July from a year earlier, down from 10.6% in June. That was short of the 10.5% rise expected by economists.

After rolling out many stimulus measures—including flooding the economy with record-high credit and speeding up government spending on infrastructure investment—China's policy makers have started to rethink the growth model for the economy. At a policy meeting late last month, the Politburo, the Communist Party's top decision-making body, cautioned against debt-fueled growth and rising asset bubbles.

The central bank suggested in its latest monetary policy report released last week that it may refrain from adopting aggressive easing measures out of concern that freeing up more funds for lending would put more pressure on the Chinese currency to depreciate.

"The government is cautious on rolling out large stimulus package. However, targeted and small stimulus will reduce the downside of the economy, but only provides limited and short-lived support as well," said Zhou Hao, an economist with CommerzeBank AG.

Grace Zhu and Liyan Qi contributed to this article.

(END) Dow Jones Newswires

August 12, 2016 01:55 ET (05:55 GMT)

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