China's retail sales declined 0.6% in May, marking the first monthly fall since December 2022 and reversing April's modest 0.2% rise. According to data from the National Bureau of Statistics (NBS), this represents the first decline in retail sales since the pandemic-era downturn, with the figure falling below the estimated 0.0% decline. The weakness was evident even during the five-day Labour Day holiday period, with travellers' spending remaining lukewarm. The decline was attributed to the fading impact of the government's consumer-goods trade-in scheme and a high base effect from May 2025, while the impact of AI investment surge has yet to filter through to domestic consumption. As Reuters reports, a downturn in domestic car sales extended into an eighth consecutive month in May, underscoring softening demand in the world's largest auto market.
Consumer confidence and credit growth continue to show concerning trends, with the consumer confidence index falling to 89.0 in April from 91.6 in February, indicating continued caution among consumers despite policy support measures aimed at boosting demand. According to a recent market strategy report by Jefferies, there is "a continuing lack of any evidence of a pickup in domestic demand," underscoring persistent challenges in the world's second-largest economy. The report also highlighted a lack of improvement in credit growth, with renminbi bank loan growth and private-sector credit growth both slowing to 5.5% year-on-year in May, suggesting businesses and households remain reluctant to borrow and invest. This weakness in household spending is reflected across multiple indicators, with the property market continuing to struggle as well.
Property investment extended its decline, dropping 16.2% in the first five months compared to the same period last year, after falling 13.7% in January-to-April. New home prices fell at a slightly faster pace in May, with larger cities showing tentative signs of stabilisation. The property sector continues to face pressure from sluggish household loan demand and worker anxiety over AI displacement. As per Business Standard, China's new home prices fell for a 35th straight month, remaining at their sharpest pace of decline since May 2025. However, there were signs of stabilisation in the country's largest urban centres, with new home prices in China's tier-one cities increasing for a fourth consecutive month in May, suggesting prices may have bottomed out in some major markets. According to Jefferies, residential floor space sold fell 12.1% year-on-year during the January-May period, while the value of property sales dropped 14.1%.
While domestic demand remains subdued, China's export sector has continued to perform strongly, with exports of goods rising 19.4% year-on-year in US dollar terms to $377 billion in May, while imports climbed 27.4% to $271 billion. A particularly strong area has been semiconductor-related exports, with exports of electronic integrated circuits surging 111% year-on-year to a record $35.5 billion in May. Shipments of such products reached $139 billion in the first five months of 2026, up 90% from a year earlier. This industrial output strength, driven by a surge in global AI investment and related tech demand, has helped offset export pressures from the Iran war, though the export gains haven't translated into domestic consumption growth.
