China retail sales YoY
China retail sales YoY (Credit: Trading Economics-National Bureau of Statistics of China)

China sees faster growth in consumption

Consumers opened their wallets a bit more in May but property investment contracted further

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Retail sales in China, a gauge of consumption, increased by 3.7% in May on an annual basis, according to the latest report by the National Bureau of Statistics (NBS) published on Monday (June 17). This marked the 16th consecutive month of growth in retail trade, and the sharpest since February 2024 and beat the forecasts of several financial institutions and analysts.

The total retail sales of consumer goods reached 3.92 trillion yuan ($540.32 billion), with sales in rural areas climbing by 4.1%. On a monthly basis, retail trade grew by 0.51% in May, the most since October 2023, beating expectations. For the first five months of the year, retail turnover grew by 4.1%.

“Due to the May Day holiday, the effective trade-in policy of exchanging old consumer goods for new ones, and the early start of the June 18 online sales promotion, the year-on-year growth rate of consumer goods retail sales in May were 1.4 percentage points higher compared to the previous month,” NBS spokesperson Liu Aihua told a press conference in Beijing on Monday.

However, other economic metrics, such as industrial output and fixed asset investment, missed forecasts.

May industrial output grew 5.6% from a year earlier, slowing from the 6.7% pace in April and missing the 6% increase expected. The industrial output increased by 0.3% on a monthly basis.

Overall fixed-asset investment, which includes properties, manufacturing investment and transport construction rose 4%  in the first five months of 2024,  from the same period a year earlier,missing forecasts for 4.2%.The miss in fixed asset investment was dragged by a steeper drop in property investment.

Data showed that real estate investment was down 10.1% in the first five months of the year, worsening from a 9.8% drop from January through April and a 9.5% drop in the first quarter.

Last month, Beijing announced a slew of measures to rescue its staggering property sector, including cutting down payment ratios, abolishing the commercial mortgage rate floors for first and second homes, and establishing a re-lending facility that supports local state-owned enterprises to use those funds to buy commercial homes for affordable housing to accelerate sales of unsold housing stock.

“May activity data and our high-frequency trackers for the first half of June suggest significant cross-sector divergences remain in the economy – strong exports and manufacturing activity, relatively stable consumption, and still-depressed property activity,” Goldman Sachs analysts said in a note.

Meanwhile, the People’s Bank of China announced it is keeping its one-year medium-term lending facility (MLF) loan rate at 2.5% and injecting 4 billion yuan via its seven-day reverse repurchase program at an interest rate of 1.8%.