China’s retail sales surged in May, growing at the fastest pace since December 2023, fueled by government subsidies and strong online shopping demand. Official data released by the National Bureau of Statistics (NBS) on Monday showed retail sales rose 6.4% year-on-year, beating economists’ forecast of 5% and marking a sharp acceleration from April’s 5.1%.
This unexpected boost offers a temporary reprieve for the world’s second-largest economy, which has struggled with persistent deflationary pressures and sluggish domestic demand in recent months. Analysts, however, warn that without sustained policy support, the momentum may not last.
NBS spokesperson Linghui Fu credited the spike in consumption to a combination of factors, including a government-backed consumer goods trade-in program, a surge in e-commerce activity ahead of the “618” shopping festival, and a rise in foreign tourist arrivals driven by expanded visa-free travel policies.
Still, Fu acknowledged the challenges ahead, citing “heightened uncertainty in trade policies” and broader economic instability, particularly since the start of Q2. “Maintaining stable economic growth has become particularly difficult,” Fu said at a press briefing.
Despite the positive retail figures, industrial production growth slowed slightly in May, expanding 5.8% year-on-year compared to 6.1% in April, narrowly missing forecasts. Fixed-asset investment also underperformed, rising just 3.7% in the first five months of 2025, down from 4% in the previous four-month period. A deepening contraction in property investment — down 10.7% — further dampened sentiment.
Housing market woes persist, with new home prices in tier-1 cities declining 1.7% in May from a year earlier. Tier-2 and tier-3 cities saw even steeper declines of 3.5% and 4.9%, respectively. “The falling property prices may weigh on consumer confidence going forward,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.
Meanwhile, China’s exports underperformed in May despite a temporary trade truce with the U.S. that paused new tariffs. Exports to the U.S. fell over 34% year-on-year — the steepest decline since February 2020 — but gains in shipments to Southeast Asia, the EU, and Africa helped cushion the blow. Goldman Sachs noted that China’s overall export performance remains resilient, indicating that tariffs alone may not significantly reduce its global trade presence.
Unemployment eased slightly, with the urban survey-based jobless rate dipping to 5.0% in May, the lowest since November 2023. However, inflation indicators remain weak. Consumer prices fell 0.1% year-on-year, while producer prices dropped 3.3%, underscoring persistent deflationary trends.
Despite these challenges, Beijing may hold off on aggressive stimulus. Goldman Sachs believes GDP growth is on track to exceed 5% in the first half of 2025, reducing the urgency for further intervention. However, economists warn that the recovery in consumption could be “short-lived” unless additional stimulus measures are introduced.
Local governments have already paused the consumer goods trade-in program as funding dries up. Any new fiscal support may not materialize until Q3 or Q4, and only if growth dips below 4.5%, said Robin Xing, chief China economist at Morgan Stanley.
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As the temporary effects of government subsidies and e-commerce events fade, the durability of China’s economic rebound remains uncertain. Without deeper structural reforms and sustained fiscal support, analysts caution that consumer sentiment and spending could once again falter.
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