China’s industrial production slowed to 5.8 percent year‑on‑year in May—its most subdued increase in six months—signaling persistent weakness in export sectors and mounting pressure from global trade headwinds. Factory output dropped from April’s 6.1 percent pace, reflecting declining orders and the lingering impact of U.S. tariffs. Manufacturers across electronics, machinery, and automotive components reported softer activity, and regional data pointed toward decreasing inventories and headcount adjustments.
In contrast, domestic consumption staged a stark rebound. Retail sales soared by 6.4 percent in May, an unexpected acceleration from April’s slower pace, marking the strongest surge since December 2023. This rebound was fueled by government stimulus programs, consumption coupons, trade‑in promotions, and online shopping festivals. Notably, the mid‑year “618” sales event drove increased demand for electronics, home appliances, and apparel. Analysts suggest that the retail bounce, coupled with improving service sector performance, reflects growing confidence among urban middle‑income consumers.
However, the property market remained a significant drag. Investment in residential construction fell by 10.7 percent through May, with home sales and prices continuing their downward slide. Persistent oversupply and debt pressure among developers have eroded household wealth and deferred discretionary purchases. Adding to the downward trend, fixed‑asset investment excluding property rose a tepid 3.7 percent, while consumer prices fell modestly, underscoring nascent deflationary pressures.
In response, policymakers have introduced targeted measures: provincial governments have rolled out mortgage rate cuts, tax rebates, and subsidy schemes aiming to stabilize the housing market. Popular initiatives convert unsold homes to rental or social housing, freeing up inventories. Yet economists warn that support remains insufficient to counterbalance weakness in exports and investment.
China’s economic trajectory hinges on sustaining retail strength while reviving stagnant manufacturing and real estate. The challenge lies in reconciling cyclical stimulus aimed at consumption with structural reforms needed for export competitiveness. Analysts recommend a dual approach: narrowly targeted relief in property and export sectors, alongside continued fiscal support for consumption.
China’s May data paint a resilient domestic consumer base amid waning industrial activity. While consumption-led growth offers a lifeline, risks from property market sluggishness and global trade uncertainty cannot be ignored. Sustained economic resilience will require a calibrated policy mix that underwrites consumption without sidelining external rebalancing and structural transformation.