Key facts
- China's retail sales may have contracted in May for the first time since the pandemic.
- Economists estimate retail sales fell 0.2% in May, following near-zero growth in April.
- Fixed-asset investment is expected to resume declines, with forecasts predicting a slump for the first five months of the year.
- Higher energy prices due to the conflict in the Middle East pose an additional risk to China's economic outlook.
- China's growth is estimated to have slowed to around 4% in April, below the government's target of 4.5% to 5%.
China's economy is facing a significant slowdown, with consumer spending potentially contracting for the first time since the pandemic. Following a brief acceleration at the start of the year, momentum is faltering due to a weak job market, faster inflation, and declining investment. Retail sales are estimated to have shrunk by 0.2% in May, a concerning development that could impact the government's full-year growth targets.
Analysts suggest that the slowdown is partly a consequence of consumers bringing forward purchases due to government trade-in programs in previous years. Car sales have seen substantial year-on-year declines for six consecutive months, exacerbated by reduced electric vehicle subsidies and the impact of higher energy prices. Consumer confidence has also dipped to its lowest point since mid-2025, with households continuing to repay loans, leading to a contraction in bank lending.
Fixed-asset investment is also showing weakness, with forecasts indicating a decline for the first five months of the year. This trend is expected to continue, with estimates suggesting a significant drop in May alone. External demand remains strong, but disruptions from the conflict in the Middle East and rising energy prices add further risk to the outlook. Some analysts believe that higher input costs may eventually be passed on to consumers.
In response to potential economic instability and global market risks, Chinese authorities have reportedly tightened controls on capital outflows. The China Securities Regulatory Commission has cracked down on offshore trading platforms, and new regulations from the State Council aim for greater oversight of outbound investment, particularly in sensitive sectors like technology and data.