China's retail sales last month fell for the first time since Dec. 2022. Industrial production slightly beat market expectations and held up, but fixed assets investment and real estate indicators also underperformed, further heightening concerns about a slump in domestic demand, the biggest challenge for China's economy. Experts noted the possibility of additional stimulus measures in the second half.
According to China's National Bureau of Statistics on the 16th, May retail sales fell 0.6% from a year earlier. It was the first decline since the lifting of COVID-19 lockdown measures in late 2022 and dropped more than the market consensus of minus 0.2% compiled by Bloomberg. CNBC said, "Travel and dining increased during the Labor Day holiday in early May, but per capita expenditure was weak from a year earlier," adding, "The Chinese government's reduction of subsidies for trade‑in purchases of used cars also contributed to the decline in retail sales."
Industrial production, which refers to the value added of industries above a designated size, rose 4.5% from a year earlier. It accelerated from April's three‑year low of 4.1% and slightly beat the market forecast of 4.4%. By the three major institutional sectors, mining increased 2.3%, manufacturing grew 4.4%, and the production and supply of electricity, heat, gas and water rose 7.6%.
In addition, general equipment manufacturing (6.7%), special equipment manufacturing (9.1%), automobile manufacturing (8.3%), railway, shipbuilding, aerospace and other transportation equipment manufacturing (7.4%), and computer, telecommunications and other electronic equipment manufacturing (17%) led the gains. In contrast, wine, beverages and refined tea manufacturing (-2.7%), textiles (-2.6%), nonmetallic mineral products manufacturing (-5.6%), ferrous metal smelting and rolling (-1.6%), and nonferrous metal smelting and rolling (-4.5%) contracted.
Goods exports and imports in May totaled 4.4516 trillion yuan (about 997 trillion won), up 16.9% from a year earlier and accelerating from the prior month. Exports rose 2.5878 trillion yuan (about 580 trillion won), up 13.8%, while imports increased 1.8638 trillion yuan (about 418 trillion won), up 21.5%.
Fixed assets investment in January–May plunged 4.1%, far below the market expectation of minus 2.3%. After turning to a decline in the second half of last year, fixed assets investment returned to growth in January–February this year, raising hopes of a market recovery, but it fell again in April (-1.6%) and the drop deepened this month.
Real estate investment fell 16.2% in the same period. The figure was below both January–April (-13.7%) and the market forecast (-14%). Home prices saw new‑home and existing‑home prices each fall 0.2% and 0.26%, respectively, widening the month‑over‑month decline. The urban unemployment rate in May was 5.1%, down 0.1 percentage point from the previous month.
Bloomberg analyzed, "As growth in Chinese manufacturing and exports slows, there is no sign that domestic demand is returning to a recovery trend," adding, "Unless domestic demand revives, China's economy risks facing a more severe downturn despite stabilization hopes from the reopening of the Strait of Hormuz."
Experts see May as the start of the traditional off‑season for China's domestic market, with June–August likely to be a watershed for a consumption rebound. Zhang Zhiwei, president of Pinpoint Asset Management, told CNBC, "Weak May retail sales show the need for additional policies to boost consumption," adding, "There is a possibility of detailed policy adjustments around July, after the release of second‑quarter gross domestic product (GDP)."