China’s domestic economy continues to face significant headwinds despite robust export growth, with consumer spending, property activity and credit demand remaining weak, according to a recent market strategy report by Jefferies.The report said there is “a continuing lack of any evidence of a pickup in domestic demand”, underscoring persistent challenges in the world’s second-largest economy even as its manufacturing and export sectors remain resilient.Retail sales, a key gauge of consumer spending, declined 0.6 per cent year-on-year in May, reversing a 0.2 per cent increase recorded in April.According to the report, this marked the first annual decline in retail sales since December 2022.
Consumer confidence and credit growth remain weak
The weakness in household spending is also reflected in consumer sentiment. As per the Jefferies report, China’s consumer confidence index fell to 89.0 in April from 91.6 in February, indicating continued caution among consumers despite policy support measures aimed at boosting demand.The report also highlighted a lack of improvement in credit growth. Renminbi bank loan growth and private-sector credit growth both slowed to 5.5 per cent year-on-year in May, suggesting businesses and households remain reluctant to borrow and invest.
Property sector still under pressure
China’s property market, long considered a major pillar of economic growth, continues to struggle. Residential floor space sold fell 12.1 per cent year-on-year during the January-May period, while the value of property sales dropped 14.1 per cent, the report noted.However, there were signs of stabilisation in the country’s largest urban centres.According to Jefferies, new home prices in China’s tier-one cities increased for a fourth consecutive month in May, suggesting prices may have bottomed out in some major markets.
Exports and chip shipments provide bright spots
While domestic demand remains subdued, China’s export sector has continued to perform strongly. The report said exports of goods rose 19.4 per cent year-on-year in US dollar terms to $377 billion in May, while imports climbed 27.4 per cent to $271 billion.A particularly strong area has been semiconductor-related exports. According to the report, exports of electronic integrated circuits surged 111 per cent year-on-year to a record $35.5 billion in May.Shipments of such products reached $139 billion in the first five months of 2026, up 90 per cent from a year earlier.Overall, Jefferies concluded that China’s economy remains heavily reliant on exports and manufacturing strength, while domestic consumption, property investment and credit demand continue to lag.
