China’s industrial output experienced its weakest expansion in six months during May, even as retail sales delivered a stronger-than-anticipated performance, reflecting a complex economic landscape shaped by renewed trade tensions with the United States.
According to figures released by the National Bureau of Statistics on Monday, industrial production grew by 5.8% year-on-year, decelerating from April’s 6.1% and falling short of market expectations of a 5.9% increase, as projected by a Reuters poll. This marks the slowest pace of industrial activity since November 2024.
Conversely, retail sales, a key indicator of domestic consumption, rose 6.4% in May, up significantly from April’s 5.1% and surpassing forecasts of 5.0%. The uplift was largely driven by buoyant Labour Day holiday spending and a government-backed trade-in initiative for consumer goods. The early launch of the “618” online shopping festival—one of the country’s largest e-commerce events—also contributed to the sharp rise in consumption.
Meanwhile, fixed asset investment grew by 3.7% in the first five months of 2025 compared with the same period last year. This was below the anticipated 3.9% and down from a 4.0% gain recorded between January and April, suggesting continued caution in capital expenditure amid ongoing trade uncertainties.
The data follows an earlier report this month revealing that Chinese exports to the United States plummeted by 34.5% year-on-year in May—the steepest decline since February 2020—highlighting the mounting pressure from U.S. tariffs.
President Donald Trump’s return to office in January reignited trade hostilities between the world’s two largest economies. Although the two sides reached a temporary agreement in Geneva last month, reducing many of the previously imposed triple-digit tariffs, new disputes over export controls have since disrupted key supply chains.
Despite claiming a deal had been finalised, Trump confirmed last week that Chinese goods would continue to face a cumulative 55% tariff rate, including the 25% levies reinstated from his previous administration. A White House spokesperson clarified that this figure represents the combined effect of existing and modified tariffs under the new framework.
In response, Beijing introduced a range of stimulus measures in May, including interest rate cuts and a substantial liquidity injection, in an effort to buffer the economy from the ongoing tariff impact. However, analysts remain sceptical about the near-term effectiveness of these policies and question whether they will be sufficient to achieve China’s GDP growth target of around 5% for the year.
Economists at Citi noted that the current tariff truce may be inadequate to stimulate a meaningful recovery in manufacturing investment, given the broader uncertainties and persistent headwinds.
While consumer activity has offered some encouragement, the underlying economic outlook remains clouded by geopolitical friction and persistent deflationary pressure, underlining the challenges China faces in sustaining momentum through the second half of the year.
-Reuters
