In May 2026, China's retail sales dropped 0.6% year-on-year, marking the first decline since December 2022. This decline coincided with a 4.1% decrease in fixed asset investment for the first five months of the year. These economic indicators suggest increasing pressure on the Chinese economy, exacerbated by weak consumer confidence and a prolonged slowdown in the property sector. While exports surged by 19.4% and industrial production grew by 4.5%, the overall economic divergence is widening. High temperatures and heavy rains have negatively impacted investment, highlighting a mismatch between strong supply and weak domestic demand. Despite these struggles, the government aims for a GDP growth target of 4.5-5% for 2026.

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China retail sales sink for first time since Covid

Investment slump deepens as divergence widens in second-biggest economy

Shoppers outside an Omega store in Shanghai China’s retail sales declined 0.6% in May on a year earlier, the first such contraction since December 2022© Qilai Shen/Bloomberg

Thomas Hale in Shanghai

PublishedJune 16 2026

UpdatedJune 16 2026

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China’s retail sales declined in May for the first time in more than three years and an investment slump deepened, as monthly economic indicators flashed warning signs for the trajectory of the world’s second-biggest economy.

Retail sales fell 0.6 per cent year on year in May, data from China’s National Bureau of Statistics showed on Tuesday, the first decline since December 2022 when Covid-19 swept through the country after restrictions were eased.

Fixed asset investment was down 4.1 per cent for the first five months of 2026 compared with the same period a year earlier, steepening from a 1.6 per cent year-on-year decline over the January-to-April period.

Taken together, the figures pointed towards rising pressures in the Chinese economy, with policymakers struggling to counter weak consumer confidence and the effects of a property sector slowdown now in its fifth year.

Against that backdrop, Beijing has relied heavily on exports, which increased 19.4 per cent last month, to support growth. Industrial production grew 4.5 per cent year on year in May, NBS data showed, up from 4.1 per cent in April.

“The divergence within China’s economy is widening,” noted Lynn Song, chief China economist at ING.

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Fu Linghui, NBS chief economist, said China’s economy “continued its overall stable and positive development trend”.

But he cited high temperatures and heavy rainfall as contributing to a “larger than expected” decline in fixed asset investment, which includes real estate development and capital construction projects.

“The contradiction between strong supply and weak demand in the domestic market remains prominent,” Fu said.

China’s monthly economic gauges are closely watched, especially as the country does not release quarterly GDP data based on the expenditure approach — a measure published quarterly by other major economies that comprises investment, consumption and net exports.

Retail sales data, widely used as a proxy for consumption, only covers goods and catering, while sectoral breakdowns by value for fixed asset investment were discontinued from 2018.

Fu said the NBS was publishing a new indicator for retail sales combining goods and services, which was up 2.8 per cent over the first five months of 2026 on the same period last year. The statistical agency did not provide a monthly figure.

Song at ING noted that retail sales saw “outsized drops” in categories which had previously benefited from a consumer goods trade-in scheme such as household appliances. “We’re now seeing the flip side of frontloading consumption,” he wrote.

The property sector also continued to struggle in May. New home prices, for which China releases limited data spanning 70 major cities, fell 0.2 per cent on average on the previous month.

Property investment is down 16.2 per cent in the first five months, compared with the same period a year earlier, worsening from 13.7 per cent over the first four months of 2026.

Fixed asset investment, long a subject of data quality concerns, declined last year as President Xi Jinping stepped up a campaign against wasteful spending, though it had recovered in the first quarter of 2026.

China’s economy has grappled with deflation for years amid concerns about overcapacity from trading partners. But higher energy costs from the US-Israeli war in Iran have spurred factory-gate prices higher, while CPI inflation has been in positive territory since October.

China has set a target for 2026 GDP growth of 4.5-5 per cent, its lowest in decades.

Data visualisation by Haohsiang Ko in Hong Kong. Additional contributions from Wenjie Ding in Beijing

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