China’s economic situation reveals an intricate puzzle as the nation moves forward into its next stage of growth. Retail sales jumped to a 17-month high in May! Yet even with these notable signs of improvement, the outlook for the second half of the year remains tentative. Standard Chartered analysts have urged caution over the decoupling of investment trends and the sustained strain on housing that’s taken hold.
Surprisingly, retail sales in China accelerated with a record-setting 0.93% (MOM) growth in May, thanks to extraordinary front-loaded policy support. This increase is indicative of households’ increased consumption. It further underscores the persistent strength in production activity, supported in large part by fiscal stimulus and steady export orders.
Even with that nice bit of rosy news about retail, the picture is mixed across the broader economy. China’s export growth is surprisingly strong. Truthfully, it’s begun to flatten out as the effects of past front-loading begin to level off. During the same month in 2019, imports plunged dramatically year-over-year. This drop was enough to cause a steep rise in China’s trade surplus.
The current geopolitical climate has created considerable uncertainty to China’s economic outlook. If we assume that all of the current U.S. tariffs on imported Chinese goods are permanent, major implications are in store for trade. The impacts will be massive and nationwide. A tariff truce holds in Geneva, but doubts and questions abound.
Investment trends are particularly concerning. The housing sector is currently crushing China’s economy. By the first five months of 2025, property investment had crashed by 10.7% year-on-year. Sales, prices, and starts came crashing down in May—falling precipitously from the previous month. This trade deficit underscores the persistent difficulties within this vital industry.
The report highlights that industrial production (IP) growth showed a modest acceleration of 0.61% month-over-month in May, suggesting some resilience in manufacturing. Even this beacon of economic positivity is likely not enough to counteract the wider currents preventing a positive economic tide from lifting all of our boats.
“Meanwhile, we remain cautious on the H2 growth outlook.” – Standard Chartered’s economists
Lastly, the performance of services production looks good, with a 6.2% YoY growth. The growth of this sector may partially cushion the downturn in the overall economy as changing consumer spending habits take effect.
Standard Chartered economists have offered recommendations on the best potential path of growth for China.
Despite the optimism surrounding certain sectors, analysts stress that more policy support is essential to stabilize the market and foster sustainable growth.
“We estimate that monthly GDP growth stayed above 5% y/y. We therefore see upside risk to our Q2 GDP growth forecast of 4.7% y/y.” – Standard Chartered’s economists
Despite the optimism surrounding certain sectors, analysts stress that more policy support is essential to stabilize the market and foster sustainable growth.
“More policy support is needed to stabilise the market, in our view.” – Standard Chartered’s economists