China’s May retail sales fall first time in three years
The Chinese economy showed increasing imbalance in May; Retail sales fell for the first time in more than three years, while industrial production accelerated.
Industrial production increased by 4.5 percent in May compared to the previous year, recovering from the 4.1 percent growth recorded in April, according to data released by the National Bureau of Statistics (NBS) on Tuesday. The readings were above expectations for a 4.3 percent increase in a Reuters poll.
A surge in global AI investment has helped the world’s largest manufacturer offset the export hit it expected from turmoil in the Middle East, but the 19.4 percent export gain has yet to be reflected in domestic consumption.
Retail sales, a key indicator of consumption, fell 0.6 percent in May, reversing a 0.2 percent increase in April and falling below the 0.0 percent forecast. This was the first monthly decline since December 2022.
This fragility was also clearly seen in the automotive industry. The decline in domestic car sales continued for an eighth consecutive month in May, underscoring softening demand in the world’s largest auto market, where the pressure is likely to continue for the rest of the year.
Even the five-day Labor Day holiday failed to boost consumer activity; The impact of the government’s consumer goods exchange scheme gradually waned.
Tuesday’s data underlines a two-speed growth pattern in the Chinese economy; The export sector is performing excellently but domestic demand is deteriorating due to a multi-year real estate crisis.
Price data also pointed to imbalances in growth. The widening gap between factory gate inflation, which has risen to its highest level since July 2022, and stagnant consumer inflation shows that demand has not yet kept pace with supply-side growth.
Investment was much weaker than expected. Fixed asset investment fell 4.1 percent in the first five months of 2025, following a 1.6 percent decline in the January-April period. Economists had expected a 2.0 percent decline.
After falling 13.7 percent in the January-April period, real estate investments continued their decline in the first five months, falling 16.2 percent compared to the same period last year. On a monthly basis, new home prices fell slightly faster in May.
Weak household credit data released last week showed people are wary of borrowing money to buy a home due to slow income growth and job insecurity.
The nationwide survey-based unemployment rate fell to 5.1 percent from 5.2 percent in April, as fears of replacement by artificial intelligence created anxiety among workers.
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