Beijing: China’s retail sales have recorded their first drop in more than three years in May, with urban investment contracting more than anticipated, highlighting ongoing challenges in the world’s second-largest economy.
According to Anadolu Agency, retail sales, an essential indicator of consumption, decreased by 0.6% year-on-year in May. This marks the first decline since December 2022, as reported by the National Bureau of Statistics. The figure fell short of market expectations for flat growth, as the Labor Day holiday did not succeed in boosting consumer demand.
Urban fixed-asset investment, encompassing real estate and infrastructure, declined by 4.1% during the January-May period compared to the previous year, worsening from a 1.6% drop in the first four months. Real estate investment remained a significant hindrance, decreasing by 16.2% in the first five months of the year. Manufacturing fixed-asset investment also saw its first contraction since December 2020, despite showing resilience in high-t
ech and policy-supported sectors. Infrastructure investment, however, rose by 0.6% year-on-year during the same timeframe.
Industrial production provided a glimmer of hope, with a 4.5% increase in May from a year earlier, surpassing expectations and rebounding from April’s nearly three-year low of 4.1%. The statistics bureau noted that the domestic imbalance between strong supply and weak demand remained ‘acute,’ and some companies were experiencing considerable operational pressure.
China’s unemployment rate slightly improved to 5.1% in May from 5.2% in April. The latest data intensifies the pressure on Beijing to implement further policy measures to stabilize consumption and investment, as the economy shows signs of losing momentum following a robust first quarter.
The easing of tensions in the Middle East and the reopening of the Strait of Hormuz may provide some relief by reducing risks associated with energy shocks. However, analysts caution that weak domestic demand continues to impede China’s recove
ry. While China’s exports remained strong in April and May, driven by renewables and AI-related demand, and higher commodity costs helped mitigate deflationary pressures, consumer inflation stayed modest. This suggests that firms are absorbing higher input costs instead of passing them on to households, given the weak pricing power.