China’s retail sales grew by 6.4% year on year in May, up from 5.1% YoY in April, the fastest growth rate since 2023.
The subcategories showed that consumption benefited significantly from the trade-in policy in May. The fastest growth was seen in household appliances (53.0%) and communication appliances (33.0%), both trade-in policy beneficiaries. Other beneficiary categories, such as auto (1.1%) and construction and decoration materials (5.8%), underperformed headline growth, but also recovered compared to prior months.
The “eat, drink, and play” theme recovered on the month as well, with catering (5.9%), tobacco and alcohol (11.2%), and sports and recreation (28.3%) all accelerating. This is a positive sign that the recovery is including non-policy beneficiary categories as well.
Retail sales growth, which comfortably beat market forecasts, was the bright spot of the May data dump. May’s data brings the year-to-date retail sales growth to 5% YoY. It’s an encouraging sign of recovery, as policy support efforts filter through the economy. However, a more sustainable consumption recovery will likely require a turnaround of consumer confidence, which remains much closer to historical lows than historical averages. A negative wealth effect and continued cost-cutting remain key headwinds.
