China’s Economic Data: May Insights

By Joe Cash and Ellen Zhang
BEIJING (Reuters) – China’s factory output growth hit a six-month low in May, while retail sales picked up steam, offering temporary relief for the world’s second-largest economy amid a fragile trade truce with the United States.

The mixed data shows China’s economy straining under U.S. President Donald Trump’s tariffs and ongoing weakness in the property sector, with entrenched declines in home prices showing no signs of reversing.

Industrial output grew 5.8% from a year earlier, according to data from the National Bureau of Statistics, slowing from 6.1% in April and missing expectations for a 5.9% rise in a Reuters poll. This was the slowest growth since November of last year.

In contrast, retail sales rose 6.4%, significantly faster than the 5.1% increase in April and outpacing forecasts for a 5.0% expansion, marking the fastest growth since December 2023.

Despite this, the mixed data failed to convince investors or analysts that growth would improve soon, with Chinese blue chips erasing brief gains.

> “The U.S.-China trade truce was not enough to prevent a broader loss of economic momentum last month,” said Zichun Huang, an economist at Capital Economics. He warned that high tariffs, waning fiscal support, and structural headwinds would likely slow growth further this year.

Earlier data showed total exports from China expanded 4.8% in May, but shipments to the U.S. plunged 34.5%, the sharpest drop since February 2020. Deflationary pressures also deepened.

Supporting retail sales were strong Labour Day holiday spending and a government-subsidized consumer goods trade-in program. An extended “618” shopping festival, one of China’s largest online retail events, began earlier than usual this year, boosting consumption.

Caution Ahead

Persistent challenges in China’s housing sector affected activity indicators, with new home prices extending two years of stagnation.

> “Wherever there is stimulus, it works; but wherever there is none, it struggles,” said Tianchen Xu, senior economist at the Economist Intelligence Unit. He expressed caution regarding future private consumption.

Fixed asset investment grew 3.7% in the first five months of the year from a year earlier, slightly lower than expectations for a 3.9% rise.

Last week, Trump stated a trade deal had restored a fragile truce in the U.S.-China trade war, with the U.S. imposing 55% tariffs on Chinese exports, including pre-existing 25% tariffs from his first term.

Thus far, trade issues have not affected employment figures, with the urban jobless rate nudging down to 5.0% in May from 5.1% previously.

Beijing launched a package of stimulus measures last month, including interest rate cuts and liquidity injections, to shield the economy from U.S. tariffs.

However, analysts noted ongoing challenges in meeting China’s growth target of roughly 5% this year and warned that more immediate stimulus was unlikely.

> ($1 = 7.1846 Chinese yuan)