A recent report by Jefferies highlights that China's domestic economy continues to show weakness despite a strong export performance. The Greed & Fear market strategy report points to persistent challenges in consumer spending, property activity, and credit growth.
Key Findings on Domestic Demand
The report notes that recent macroeconomic data from China indicates a lack of evidence of a pickup in domestic demand. Retail sales declined by 0.6% year-on-year in May, compared to a 0.2% increase in April, marking the first annual decline since December 2022. Consumer confidence also fell, with the index dropping to 89.0 in April from 91.6 in February, suggesting households remain cautious despite policy support.
Property Sector and Credit Growth Under Pressure
The property sector, a key driver of the economy, remains under stress. Residential floor space sold declined by 12.1% year-on-year in January-May, while sales value fell 14.1% during the same period. Credit growth has also slowed, with renminbi bank loan growth and private sector credit growth both slowing to 5.5% year-on-year in May.
Export Boom Continues
Despite domestic weakness, China's export engine performs strongly. Exports of goods rose 19.4% year-on-year in US dollar terms to USD 377 billion in May, while imports increased 27.4% to USD 271 billion. Semiconductor-related exports surged, with electronic integrated circuit exports rising 111% year-on-year to a record USD 35.5 billion in May, and up 90% year-on-year to USD 139 billion in the first five months of 2026.
Bright Spots in Major Cities
While domestic demand remains weak, there are signs of improvement in China's largest cities. Home prices appear to have bottomed out, with new home prices in tier-one cities rising for the fourth consecutive month in May. However, the broader picture shows an economy heavily reliant on exports and manufacturing, while domestic consumption, property investment, and credit demand lag.
