The clearest signal in the latest data expectations is that household spending may have contracted in May compared with a year earlier. If confirmed, it would be the first decline in retail sales since the country emerged from the lockdown period at the end of 2022.

That is a serious warning sign. China’s policymakers have repeatedly said they want stronger domestic demand, especially consumption, to carry more of the growth burden. Instead, the economy still looks unbalanced. Manufacturing and exports are doing far more of the heavy lifting than household spending.

Economists surveyed by major international outlets expect retail sales to have edged down by about 0.2 per cent year on year in May. On paper that may sound mild. In context, it is not. It would mark a reversal from the stronger start earlier in the year and suggest that the underlying problem has not gone away.

The reasons are familiar:

• A weak labor market
• Fragile household confidence
• Ongoing pressure to reduce debt
• Reluctance among families to spend freely

This is the core problem. China can produce. China can export. But getting households to spend with confidence remains much harder.

Subsidies and Tourism Can’t Replace Durable Household Confidence

One major drag appears to be the fading effect of trade-in subsidy programmes. These schemes encouraged households to replace older consumer goods earlier in the year. That helped boost short-term spending, but it also pulled demand forward.

Once those purchases were made, later months were always likely to look weaker. That is exactly the risk many economists highlighted at the time. Temporary incentives can support a burst of activity, but they do not automatically create durable confidence.

Beijing can stimulate buying in bursts, but the bigger challenge is getting households to feel secure enough to spend without needing a push every few months.

Tourism data tells a similar story. Labour Day travel spending rose in total, but the more revealing figure was average spending per traveller, which remained largely flat and still below pre-pandemic levels.

People are still going out and moving around—but they are keeping a tighter grip on their wallets. Activity has returned faster than confidence.

Autos, Energy Costs, and Investment Weakness Raise the Stakes

The most striking decline is in vehicles. Auto sales reportedly fell by more than 22 per cent in May from a year earlier, extending a run of steep double-digit drops.

Several factors are weighing on demand:

• Reduced electric vehicle subsidies
• Higher fuel prices
• Broader consumer caution

Fuel costs matter more than they might first appear. Tensions in the Middle East have fed into higher oil prices, and that creates another source of pressure on household budgets. When consumers already feel uncertain, rising transport and energy costs can easily push a big purchase out of reach.

Weakness is not confined to households. Fixed asset investment is also expected to remain under pressure. Estimates indicate that investment fell 2.3 per cent during the first five months of the year.

The factors behind that slowdown include:

• Soft consumption
• Slower government spending
• Delayed infrastructure projects
• Bad weather disruptions
• A slower pace of government bond issuance

In other words, multiple support engines are misfiring at the same time. Consumers are cautious. Investment is weak. Fiscal follow-through has not been strong enough to offset the drag.

Bright Spot in Industry—But Export-Led Strength Isn’t Enough

The bright area is industrial production. Output is expected to have grown by 4.3 per cent in May, with government support and overseas demand helping the sector.

Artificial intelligence-related demand is a major part of this. Exports of chips reportedly surged by 111 per cent from a year earlier, while demand for semiconductors, computers, and related hardware continues to support trade.

That creates a familiar contradiction in the Chinese economy. Industrial capability remains strong, especially in strategic sectors. But relying too heavily on exports and factory output creates its own risks.

If domestic demand stays weak, export strength alone may not be enough to carry growth sustainably—particularly in a world where trade friction is rising and external demand can turn quickly. A related view on that broader strain has appeared in recent China coverage.

The policy implication is straightforward. If household confidence does not improve, further monetary easing later this year becomes more likely. Without that, meeting the official 2026 growth target of 4.5 to 5 per cent could become increasingly difficult