Disappointing Chinese domestic data could add to pressure for fresh stimulus
Economic indicators from China continue to raise concerns, suggesting that recent weak domestic data may prompt the government to introduce additional stimulus measures. Per the full note source, disappointing figures for retail sales and fixed asset investments—both reaching pandemic lows—indicate soft domestic demand, while industrial production appears temporarily resilient. This divergence highlights a critical juncture for Chinese policymakers as they grapple with enhancing domestic consumption in the face of ongoing economic challenges.
What the desk is arguing
The desk frames this as a pivotal moment for China, where the need for renewed stimulus is catalyzed by disappointing consumer metrics. Retail sales growth plummeted to -0.6% year-on-year in May, a stark contrast from the 0.2% seen in April, while fixed asset investment fell to -4.1% year-to-date as of May.
This weaker-than-expected performance in key segments signals that consumer confidence remains feeble, driven by slowing wage growth and the broader property sector crisis. Given the stated objectives within China's Five-Year Plan, the anticipated stimulus measures are likely aimed at reigniting consumption, critical for economic recovery.
Where it sits in our coverage
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How other firms see it
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What the calendar says
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How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01China's retail sales fell to -0.6% YoY in May, indicating weakening consumer demand.
- 02Fixed asset investment declined to -4.1% YoY year-to-date, the lowest since the pandemic.
- 03The divergence in economic performance underscores the urgency for more stimulus measures.
- 04Consumer confidence is notably low, impacted by the sluggish property market and workforce wage constraints.
Market implications
Traders should closely monitor continued updates from China regarding potential fiscal measures aimed at stimulating consumption, especially as economic conditions evolve. Key levels for USD/CNY could be affected as the market digests this data and anticipates the effectiveness of any stimulus implementation.
Risks to this view
A material rebound in consumer sentiment or unexpected strength in fixed asset investments could invalidate the expectation for further stimulus. Additionally, if external demand significantly wanes, this could further exacerbate the economic divergence currently being observed.
Articles Disappointing Chinese domestic data could add to pressure for fresh stimulus 04:33 China Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download The divergence within China's economy is widening. Retail sales and fixed asset investment growth both plummeted to the lowest levels since the pandemic as domestic demand remains soft. But industrial production remains a bright spot, supported by strong external demand Lynn Song Retail sales growth fell into negative territory in May China's retail sales growth fell to -0.6% year-on-year in May, down from 0.2% in April.
The data was in line with our forecasts, but weaker than market consensus (market -0.2%, ING -0.6%). It’s the lowest level since pandemic-skewed 2022. We continued to observe the impact of the trade-in policy on related categories, which dragged down overall consumption.
Beneficiary categories such as household appliances (-15.6%), autos (-16.1%), and furniture (-8.7%) saw outsized drops on the month. We’re now seeing the flip side of frontloading consumption. Gold and jewellery sales also performed poorly on the month at -8.9% YoY amid the continued drop in gold prices.
Despite the hike in gasoline prices, petroleum sales also dropped 3.2% YoY. Consumer staples such as grains and oils (1.9%) and beverages (6.1%) outperformed on the month. Consumer confidence remains quite soft in China, as wage growth slows and household balance sheets continue to be impacted by the property price downturn.
This year's smaller stimulus push is also leading to disappointing year-to-date retail sales growth. Given the prominent role of boosting domestic demand in China's Five-Year Plan, more measures to boost consumption could be rolled out moving forward. Trade-in policy beneficiary sectors are now heavily dragging growth Fixed asset investment continues to plummet amid uncertainty Fixed asset investment dropped to -4.1% YoY ytd, down from -1.6% YoY ytd in April.
This was well below forecasts (market: -2.3%, ING: -2.8%) and marked the lowest level since 2020. Private sector investment continued to lag heavily, down -7.1% YoY ytd, compared to a smaller drop of -0.4% YoY ytd for public investment. Decision makers may have preferred caution amid global geopolitical uncertainty, adding to an already weak investment environment.
By industry, there was substantial divergence. We continued to see solid investment into sectors such as rail, ships, and aerospace (23.6%), textiles (10.8%), transportation (7.1%), and computer and electronics manufacturing (6.7%), which are currently benefiting from strong external demand. Hi-tech investment continued to grow at 4.5% YoY ytd.
However, most other industries saw negative investment growth. The lack of investment appetite is one of the factors impacting markets, translating into low borrowing demand and, consequently, banks parking more funds in government bonds. Policymakers have expressed an intention to stabilise investment this year.
It looks like they have their work cut out. Private sector investment continues to heavily underperform Industrial production remains the lone bright spot Industrial production grew by 4.5% YoY in May, up from 4.1% in April. It was the lone indicator this month that came in stronger than forecasts (market: 4.4%, ING: 4.3%).
Industrial production continues to be supported by strong external demand, and the data show that the outperforming sectors are the same ones that see strong export growth. Autos (8.3%), rail, ships, and aerospace (7.4%), and computer and electrical equipment manufacturing (17.0%) all solidly outpaced headline growth. Amid China's efforts toward industrial modernisation and tech self-reliance, hi-tech manufacturing has also outperformed at 15.1% YoY in May.
Industrial (27.9%) and service (19.8%) robotics production continued to grow strongly. In contrast, sectors traditionally buoyed by domestic real estate and infrastructure investment, such as cement (-8.1%), steel (-2.8%), and glass (-6.3%), all continued to struggle. Hi-tech manufacturing continues to drive industrial activity Property prices continued to see mild decline China's National Bureau of Statistics released its 70-city sample of property prices for May.
New home prices fell by -0.20% month-on-month, while used home prices dipped by -0.26%. Looking at the city-level breakdown, we had a slightly softer read in May than last month's data, but positive momentum in tier-1 and tier-2 cities generally continued. This is an important development toward eventually finding a trough in property prices.
In the primary market, 18 cities saw prices stabilise or rise in May (up from 21 in April), versus 13 in the secondary market (down slightly from 16 in April). It remains too early to confidently call a bottom for the property market, as prices continue to decline, and inventory levels remain high. Property investment, already down -16.2% YoY ytd, will remain a major drag on growth for some time.
Retail sales Industrial Production Fixed asset investments Emerging markets China Asia Pacific Asia Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Author Lynn Song Chief Economist, Greater China Lynn Song joined ING in January 2024 as the Chief Economist for Greater China.
Prior to joining ING, he worked at China Construction Bank International, China Merchants Securities (HK), and Haitong… In this article Retail sales growth fell into negative territory in May Fixed asset investment continues to plummet amid uncertainty Industrial production remains the lone bright spot Property prices continued to see mild decline
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