China’s consumer spending slowdown deepened in May as retail sales unexpectedly fell from a year earlier, in the latest sign that the country’s housing market crash has left millions of consumers reluctant to spend.
Retail sales dropped 0.6 percent in May from the same month a year earlier, the National Bureau of Statistics said on Tuesday. It was the first year-over-year decline since December 2022, when a wave of coronavirus infections swept the country and kept consumers at home after Beijing abruptly dismantled its stringent “Covid zero” restrictions.
Last month’s decline was a surprise because higher energy costs were expected to help lift retail sales. Gasoline sales, which are included in the retail sales figures, have risen as fuel costs increased following the closure of the Strait of Hormuz, and the retail sales figures are not adjusted for inflation. Yet retail sales still fell. After accounting for rising consumer prices, the decline in spending would have been steeper.
Weak demand at home has prompted companies across China to push harder into overseas markets. Exports hit a record in April and then climbed even higher in May to $376.8 billion, according to data released last week by China’s General Administration of Customs. Industrial production also strengthened in May, driven in part by especially strong output of electric cars and other high-tech products.
“China’s supply side remains relatively strong: exports are growing rapidly, industrial production is holding up well, and high-tech sectors continue to expand,” said Zhu Tian, an economics professor at the China Europe International Business School in Shanghai. “However, domestic demand remains weak.”
Investment in China fell in May even after excluding the deeply troubled real estate sector, as companies saw few opportunities for profitable expansion. Investment by private sector companies was particularly weak.
China’s trade surplus did not reach another monthly record in May because higher oil prices increased the cost of imports. China partly offset the impact by importing fewer barrels of oil than usual.
China’s increasingly bifurcated economy — marked by weak domestic demand and growing reliance on consumers in other countries — is expected to be a topic of discussion at the Group of 7 summit underway in southeastern France. The European Union has been weighing possible measures to limit imports of subsidized Chinese goods, while many Western economists argue that China’s currency, the renminbi, remains significantly undervalued.
“The G7 should come together to forge greater unity and a strategy to cope with what some are now calling China Shock 2.0, including pressing for significant renminbi appreciation,” said Mark Sobel, vice chairman and chief economist of the Official Monetary and Financial Institutions Forum, a research group specializing in central banking and currency policy.
Car sales plunged in China last month, mainly due to a sharp drop in gasoline-powered car sales amid higher fuel prices. Overall vehicle sales dropped 22 percent in May from a year earlier and were a major drag on retail spending.
The slide in car sales would have been far larger without continued strength in electric vehicles and plug-in gasoline-electric hybrids, which accounted for five of every eight cars sold in China last month.
Few auto industry executives expect a quick turnaround. Summer is typically a slow season for car sales, which often do not recover until the national holidays in late September and early October.
“Weak consumer confidence, combined with the prolonged downturn in the property sector, is likely to keep domestic demand under pressure,” said Cui Dongshu, the secretary general of the China Passenger Car Association, in a written reply to questions.
Ruoxin Zhang contributed research.
