China’s economy displayed mixed results in May, characterized by a notable increase in retail sales amid a slowdown in factory output, impacted by rising U.S. tariffs. Official data released on Monday indicated a 6.4% rise in retail sales compared to the previous year. This surge was partially driven by promotions targeting goods previously stranded due to halted shipments and a major online shopping festival, which began in May, offering consumers substantial discounts.
Despite these retail gains, the industrial sector faced challenges. Manufacturing output saw a year-on-year increase of 5.8% in May, down from 6.1% in April and 7.7% in March, as U.S. tariffs imposed by President Donald Trump began to take their toll. While total exports climbed by 4.8% from the previous year, this was a significant drop from April’s 8.1% increase, and exports to the U.S. plummeted by 35%.
Economists noted that although China’s economy had generally withstood the tariff increases well, there are persistent signs of weakness, particularly in the property market and deflation concerns. Consumer prices dipped by 0.1% in May year-on-year and by 0.2% from April. Real estate investment fell by 10.7% in the first five months of the year, with slight declines in housing prices across various cities. Additionally, investments in factory equipment and fixed assets only grew at a modest annual rate of 3.7%.
China’s Economic Crossroads
A Tale of Two Sectors: May 2025 Data
Retail Sales Surge (Y-o-Y)
Exports to U.S. Plummet (Y-o-Y)
Industrial Sector Under Pressure
Manufacturing Output Growth (Y-o-Y)
Persistent Economic Headwinds
Retail sales witnessed a 5% increase from January to May compared to the previous year. However, consumer confidence remains subdued, partially due to vulnerabilities in the property sector, which is crucial for many families’ financial stability. Analysts suggest that a more robust recovery in consumer spending is contingent upon a revival in consumer confidence.
The looming threat of further tariff hikes continues to cast a shadow over trade relations between the United States and China, with a deadline set for August 10 to reach an agreement following recent negotiations in London. Analysts predict that if tariffs remain high, export growth might encounter additional hurdles by the end of the year.
