Huge waiting lines are seen in front of jewelry retailer stores at Yu Garden in Shanghai, China, on May 17, 2025, as the city offers consumption vouchers to stimulate consumer spending.
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China’s retail sales in May grew at their fastest rate since late 2023, as government subsidies helped boost consumption, with analysts calling for stronger policy support to sustain the recovery.
Retail sales last month jumped 6.4% from a year earlier, data from National Bureau of Statistics showed Monday, sharply beating analysts’ estimates for a 5% growth in a Reuters poll and accelerating from the 5.1% growth in the previous month.
The spike in sales growth comes as a welcome respite for the world’s second-largest economy that has been struggling with persistent deflation.
Linghui Fu, NBS spokesperson, attributed the improving consumption in May to the ongoing consumer goods trade-in program, a surge in online shopping ahead of the “618” e-commerce event and a rise in foreign tourists as the country expanded its visa-free entry list to include more countries.
However, he added that it has been “particularly challenging” for China’s economy to maintain stable growth since the second quarter, naming heightened uncertainty in trade policies among factors dragging growth. Fu made the comments at a press conference following the data release.
The country’s industrial output slowed to 5.8% year on year in May from 6.1% in the prior month. The latest reading came in slightly weaker than analysts’ expectations for a 5.9% rise.
Fixed-asset investment, reported on a year-to-date basis, expanded 3.7% this year as of May from a year earlier, undershooting Reuters’ forecast for a 3.9% growth and slowing from a 4% growth in the first four months. Within the fixed-asset investment, the contraction in property investment deepened, falling 10.7% in the first five months, government data showed.
“The rise of retail sales came as a surprise,” said Zhiwei Zhang, president and chief economist at Pinpoint asset management, while cautioning that the falling property prices could dampen consumer sentiment.
A separate release Monday by the NBS showed prices of new homes in the more affluent tier 1 cities continued to decline, falling 1.7% in May from a year ago, while those in tier 2 and tier 3 cities dropped 3.5% and 4.9%, respectively.
The NBS official noted that more work was needed to stop the slump in real estate market.
A tariff deal reached by Beijing and Washington in mid-May gave temporary relief to the country’s exports, prompting some businesses to frontload shipment while doubling down on alternative markets. Both sides struck a 90-day truce to roll back most of the triple-digit levies added on each other’s goods in early April.
Commerce Secretary Howard Lutnick told CNBC last week that U.S. tariffs on Chinese imports will stay at their current level of 55%.
China’s exports grew less than expected in May, though surging shipments to Southeast Asian nations, European Union countries and Africa helped offset the sharp decline in U.S.-bound goods. China’s exports to the U.S. plunged over 34% from a year ago, their sharpest drop since February 2020.
The past two months’ trade data indicated resilience in China’s exports, according to Goldman Sachs, signaling “the difficulty for bilateral tariffs to meaningfully reduce total Chinese exports.”
Separately, China’s urban survey-based unemployment rate in May came in at 5.0%, easing from 5.1% in April to the lowest level since November last year.
Spurring consumption
Sluggish domestic demand has been a pressing issue for Chinese policymakers. Consumer prices have seen an year-on-year decline for four consecutive months, slumping 0.1% in May. Deflation in the factory-gate or producer prices has also deepened, falling 3.3% from a year ago.
However, Beijing may feel less urgency in rolling out additional easing steps as exports appear more resilient than expected and the GDP growth is on track to exceed 5% in the first half-year, according to Goldman Sachs.
That said, there are still reasons to stay cautious, said Tianchen Xu, senior economist at Economist Intelligence Unit, anticipating private consumption to see a “triple whammy” — tightening dining curbs on officials, the end of a frontloaded 618 shopping festival and the suspension of government consumer subsidies.
Local governments in several cities across the country recently paused the consumer goods trade-in program, as the first two batches of central government subsidies have been exhausted with additional funding yet to arrive, Goldman Sachs pointed out.
Any additional stimulus will likely only come when the economy starts to show sign of weakening, economists said.
“Absent further demand-side stimulus, we expect that the consumption recovery will be short-lived,” Jianwei Xu, senior economist at Natixis, told CNBC via email.
Beijing is likely to expand modestly its annual fiscal quota to fund the subsidy program toward the end of the third quarter or start of the fourth quarter, said Robin Xing, chief China economist at Morgan Stanley, if the economic growth falters to below 4.5%.
