China's retail sales declined in May for the first time since the end of its COVID-19 lockdowns in late 2022, underscoring ongoing challenges in domestic demand despite a surge in exports. Data released by the National Bureau of Statistics (NBS) showed retail sales fell 0.6 percent year-on-year last month, reversing a modest 0.2 percent increase recorded in April. This result was below economist expectations, which had anticipated a slight 0.09 percent rise.
The unexpected drop occurred despite increased consumer activity over the Labour Day holiday and comes amid concerns about cautious household spending amid uncertainties in the labor market. Meanwhile, industrial output grew 4.5 percent year-on-year in May, up from 4.1 percent the previous month but still below the 5.7 percent growth seen in March. The production gains have been largely driven by strong export performance rather than domestic consumption.
Experts note that China's economic growth remains heavily dependent on exports, while internal demand shows signs of weakness. Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered, suggested the May retail decline partly reflected the temporary nature of earlier consumption incentives, including trade-in programs for home appliances and electric vehicles. Ding indicated that Beijing may introduce more stimulus measures following the Politburo meeting scheduled for late July, possibly accelerating fiscal spending to support credit demand if upcoming economic data fail to improve. He warned that if June figures do not show notable progress, second-quarter GDP growth could slip below 4.5 percent, falling short of the government’s target range.
Zhang Zhiwei, president and chief economist at Pinpoint Asset Management, echoed the outlook for additional policy measures aimed at stabilizing consumption. He also raised concerns that while strong export growth is cushioning the economy, it could exacerbate trade tensions, particularly with Europe, posing risks to future growth.
The NBS attributed the retail sales decline partly to a higher comparison base from last year, which had been bolstered by consumer goods trade-in initiatives. Spokesman Fu Linghui also cited adverse weather conditions disrupting offline consumption in some regions. Fu emphasized that while retail sales of consumer goods declined, the broader consumer market, including the services sector, remained stable.
Other economic indicators pointed to persistent weaknesses. Fixed-asset investment, encompassing infrastructure, manufacturing, and property construction, fell 4.1 percent year-on-year for the January-May period, worsening from a 1.6 percent decline earlier in the year. The property sector continued its downturn, with real estate investment dropping 16.2 percent year-on-year over the first five months, compared to a 13.7 percent decline through April. New home sales by floor area also contracted 10.8 percent year-on-year during the same period.
Gary Ng, senior economist for Asia-Pacific at Natixis, summarized the challenges, noting that the Chinese economy faces increasing headwinds after a strong start earlier this year. He highlighted ongoing stress in consumption as households remain cautious, choosing to save rather than spend. The data underline the government’s delicate task of balancing growth amid structural pressures and shifting external conditions.