China's Economic Picture Mixed as Factory Output Slows, Retail Sales Rebound
China’s industrial output growth slowed to a six-month low in May, signaling persistent economic headwinds, while an unexpected surge in retail sales offered a fleeting boost for the struggling economy amid a fragile trade truce with the U.S.
According to the National Bureau of Statistics, factory output rose 5.8% year-over-year in May, missing expectations and slowing from April’s 6.1% growth—marking the weakest pace since November. In contrast, retail sales grew 6.4%, the strongest performance since December 2023, bolstered by robust Labour Day holiday spending and government-backed trade-in subsidies on consumer goods.
Despite the retail rebound, analysts remain cautious. "The U.S.-China trade truce wasn't enough to offset weakening momentum," said Zichun Huang of Capital Economics. "Structural drags and high tariffs will likely keep growth under pressure this year."
Exports posted 4.8% growth in May overall, but shipments to the U.S. plunged by 34.5%—the steepest drop since February 2020—underscoring the continued strain from elevated tariffs. President Trump recently confirmed a 55% overall tariff rate on Chinese goods under a new framework agreement.
Meanwhile, China's deflationary trend persisted and the embattled property sector showed little sign of recovery, with home prices continuing their two-year stagnation. Fixed asset investment rose 3.7% in the first five months of the year, falling short of forecasts.
Stimulus measures, including rate cuts and liquidity boosts, have provided limited relief. Economists warn that without further intervention, Beijing may struggle to hit its 5% annual growth target.
"Wherever stimulus is present—like in home appliance sales—it’s working. But areas without support, like property development, are clearly lagging," said Tianchen Xu of the Economist Intelligence Unit.
The job market showed minor improvement, with the urban unemployment rate dipping to 5.0% in May from 5.1% in April. However, concerns persist that consumer confidence could wane as government subsidies expire and post-holiday consumption normalizes.