- China’s retail sales declined by 0.6% in May, compared with an expected 0% report.
- Fixed asset investment growth fell 4.1%, compared to an expected 2% decline.
- The gap between China’s exports and domestic trade is widening, causing tension.
The Chinese economy is facing significant challenges, with the latest released economic data confirming a further plunge into recession. China’s official economic data show 0.6% decline in retail sales in May, compared with the expected 0%.
Released Data Reflect China’s Economic Struggles
The Asian giant’s fixed asset investment growth also declined by 4.1% versus an expected 2% drop. Data released suggests the entire Chinese economy is now being carried by exports, with over 50% are essentially driven by the ongoing AI build-out in the US.
Other key economic indices from the Chinese government reflect a struggling economy, raising concerns among the citizens and businesses over an impending period of economic difficulties. For instance, shrinking corporate entertainment budgets are having a ripple effect on local businesses. Most merchants resort to offering incentives to attract customers, leading to squeezed margins.
Chinese consumers are no longer as impulsive, and Zhiwei Zhang, chief economist at Pinpoint Asset Management, thinks the weak retail sales data puts the government under pressure to consider policy measures. According to Zhang, he expects a policy fine-tuning in July after the government releases its second-quarter GDP data.
Several Factors are Behind China’s Economic Struggles
Meanwhile, Tianchen Xu, senior economist at the Economist Intelligence Unit, thinks several divides characterized the Chinese economy in May. Tianchen noted the divide between domestic and external demand, AI and traditional industries, and goods retail and services consumption as the main factors behind the current situation. However, he believes the economy can still achieve its full-year 2026 growth target of 4.5-5% through policy intervention in the second half of the year.
The spokesperson for China’s National Bureau of Statistics (NBS), Fu Linghui, attributed the economic decline to rising temperatures and heavy rain in some regions, as well as the transition from old to new growth drivers. According to Linghui, China still has ample room for investment in the future, with new urbanization, rural revitalization, the development of “new quality productive forces,” and improvements in public services all requiring support.
In the meantime, economic experts think China needs to respond quickly to mitigate the widening gap between its expanding exports and weakening domestic output. Failing to address the issue could lead to tension with trading partners amid the hovering risk of a potential trade conflict with Europe in the coming months.
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