China Retail

Economic activity readings are generally soft in May

Latest reading: China’s industrial production rose 4.5% year on year in May, up from 4.1% in April and above market expectations, supported by faster manufacturing and utilities growth despite weaker mining output. However, May’s figure was still the second-weakest since 2024. Retail sales fell 0.6%, after a 0.2% rise in April, as weak demand for discretionary and big-ticket goods outweighed the Labor Day boost. May’s reading was worse than markets expected. Retail sales continued to be weighed on by payback from the government’s trade-in program. Fixed-asset investment declined 4.1% in January–May, worsening from a 1.6% drop in January–April and a sharper fall than markets anticipated. The weak reading was chiefly due to the property downturn; infrastructure and manufacturing investment rose modestly.

Panelist insight: On the data, Nomura analysts said: “The worsening of domestic demand increases our conviction in our view that both markets and policymakers should not simply assume an AI boom and a rise in stock indices will cure China’s property bust-driven ?economic woes. The sustained weakness in IP growth reflects a limited boost from the price-driven export boom and lingering supply disruptions across energy raw materials. Despite the US-Iran deal, the shipment of energy supplies from Persian Gulf nations may take time to fully resume.” ING’s Lynn Song commented on investment: “We continued to see solid investment into sectors such as rail, ships, and aerospace (23.6%), textiles (10.8%), transportation (7.1%), and computer and electronics manufacturing (6.7%), which are currently benefiting from strong external demand. Hi-tech investment continued to grow at 4.5% YoY ytd. However, most other industries saw negative investment growth.”

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