China retail sales drop for first time since 2022 as economy weakens

China's retail sales fell for the first time in more than three years in May as consumer demand weakened during the Labor Day holiday period, while urban fixed-asset investment contracted more sharply than expected in a further sign of stress for the world's second-largest economy. Retail sales dropped 0.6% year-on-year in May, marking the first decline since December 2022 and falling short of market expectations for flat growth, according to data released Saturday by the National Bureau of Statistics.

The National Bureau of Statistics said the domestic imbalance between strong supply and weak demand remained "acute," adding that some companies were under considerable operational pressure. The latest figures add pressure on Beijing to introduce further policy support to stabilize consumption and investment, as the economy loses momentum following a stronger first quarter.

Investment contraction deepens on property drag

Urban fixed-asset investment, spanning real estate and infrastructure projects, fell 4.1% during the January-May period from a year earlier. The decline deepened from a 1.6% drop recorded in the first four months of 2025, with real estate investment remaining a major drag at 16.2% down in the first five months.

Manufacturing fixed-asset investment also contracted for the first time since December 2020 despite showing resilience in high-tech and policy-supported sectors. Infrastructure investment rose 0.6% year-on-year during the same period, failing to offset the broader contraction in fixed-asset spending.

Industrial output rebounds amid policy pressure

Industrial production provided the main bright spot with a 4.5% rise in May from a year earlier, recovering from April's near three-year low of 4.1% and beating analyst expectations. The unemployment rate edged down to 5.1% in May from 5.2% in April, though analysts warn that weak domestic demand continues to weigh on China's recovery even as exports remain resilient.

The reopening of the Strait of Hormuz has reduced risks of energy shock to the manufacturing sector, offering some relief to industrial operations. Consumer inflation remained modest in May, suggesting firms are absorbing higher input costs rather than passing them on to households amid weak pricing power.