The unexpected decline in retail sales highlights China’s increasing reliance on exports for economic growth amid weakening domestic demand. Retail sales fell 0.6% in May compared to the same month the previous year, according to the National Bureau of Statistics.
China’s consumer spending slowdown continued as retail sales declined for the first time since December 2022. This decrease follows a coronavirus outbreak during which Beijing lifted stringent ‘Covid zero’ restrictions. Despite higher energy costs, which were anticipated to boost retail sales due to increased gasoline sales, retail sales figures dropped as they are not inflation-adjusted.
In light of weak domestic demand, Chinese companies have turned towards overseas markets more aggressively. Exports soared to a record in April, further increasing in May to $376.8 billion, as reported by the General Administration of Customs. May also saw a strengthening in industrial production, boosted by significant output in electric cars and other high-tech products.
Zhu Tian, an economics professor at the China Europe International Business School in Shanghai, commented, ‘China’s supply side remains relatively strong. Exports are growing rapidly, industrial production is holding up well, and high-tech sectors continue to expand. However, domestic demand remains weak.’
Investment fell in China in May, even excluding the troubled real estate sector. Companies observed limited opportunities for profitable expansion, with private sector investment particularly weak.