In the bustling city of Bangkok, recent data paint a complex picture of China’s economic performance in May, with varied outcomes across different sectors. Retail sales experienced a positive surge, whereas the manufacturing sector faced challenges in light of heightened U.S. tariffs.
According to recently disclosed figures, retail sales saw an increase of 6.4% compared to the previous year. This uptick was partly driven by promotional efforts for products that remained unshipped due to the tariffs. Contributing to this retail boom was a major online shopping festival, which started before June 18. This event, featuring widespread discounts, spurred consumer spending.
Despite the retail sector’s promising growth, the manufacturing industry and export markets encountered difficulties due to the tariff situation. Although import duties have largely been postponed as ongoing negotiations between Beijing and Washington continue, the tariffs have nonetheless impacted production and exports significantly.
Data from the National Bureau of Statistics reveals that manufacturing output increased by 5.8% annually in May, in contrast to 6.1% in April and 7.7% in March. The manufacturing sector had initially surged earlier this year, but the momentum waned once new U.S. tariffs were implemented.
Furthermore, China reported a 35% diminution in exports to the United States for May, year-on-year. Total exports recorded a modest rise of 4.8% compared to last year—a figure notably below economists’ projections and a decline from the 8.1% surge reported in April.
Economists remain cautiously optimistic, asserting that China, as the world’s second-largest economy, has managed to navigate the tariff challenges adeptly. However, vulnerabilities persist, particularly with an ongoing downturn in the real estate market that shows no immediate signs of recovery.
Economic concerns are exacerbated by a risk of deflation, as consumer prices decreased by 0.1% over the year and 0.2% from April to May. Real estate investment experienced a 10.7% drop for the period from January to May year-on-year, with housing prices slightly declining in most cities, according to the report.
Spending on equipment and other fixed assets remains tepid, growing at a diminutive pace of 3.7% per annum. Retail sales saw some uplift due to the “618” festival, commemorating JD.com’s founding on June 18, 1998, along with China’s initiatives to incentivize trade-ins of appliances and vehicles.
However, retail sales during the January-May timeframe only increased by 5% over the previous year. Consumers seem reluctant to spend due to lethargy in the real estate sector, which plays a crucial role in household wealth. As per Lynn Song from ING Economics, despite May’s encouraging data, a resilient recovery in consumer spending demands bolstered consumer confidence, currently lagging near historical lows.
The prospect of additional tariffs that could further disrupt trade looms large. With a looming deadline of August 10 for reaching a trade deal following talks in London, tensions persist between the competing economies. Zichun Huang from Capital Economics cautioned that “with elevated tariffs and exporters facing broader constraints, export growth is likely to decelerate further by the year’s end.”