BEIJING (BLOOMBERG) - China's economy posted its worst showing this year as curbs on property, excess borrowing and industrial overcapacity began to bite, data released on Monday (Aug 14) showed.

Industrial output rose 6.4 per cent from a year earlier in July, lower than a median projection of 7.1 per cent and June's 7.6 per cent.

Retail sales expanded 10.4 per cent from a year earlier, compared with a projection of 10.8 per cent and 11 per cent in June.

Fixed-asset investment in urban areas rose 8.3 per cent from a year earlier in the first seven months, versus a forecast 8.6 per cent rise.

The world's second-largest economy faces some headwinds this year as the effects of deleveraging and industrial capacity cuts kick in, and those factors are beginning to show up in the hard data. With cooling property markets and uncertainty in the trade outlook, policy makers may refrain from tightening too aggressively to keep growth humming, especially with the political transition entailed in the 19th Party Congress looming.

"The second half of this year is sure to see a mild economic slowdown as the side effects of the deleveraging campaign start to kick in," said economist Tommy Xie at OCBC Bank in Singapore. "Borrowing costs have been pushed up, as we've seen in the second quarter, and it will be more pronounced in the rest of the year. But the possibility of a sharp drop is unlikely."

All three indicators falling from strong June readings is "an initial signal of economic slowdown in the second half," said chief China economist Ding Shuang at Standard Chartered Bank in Hong Kong. "It doesn't necessarily indicate a big shift in policies, since the readings aren't very bad, but slight adjustments are possible, especially in monetary policy."