A recent market strategy report by Jefferies indicates that China's domestic economy continues to encounter significant headwinds despite robust export growth. Consumer spending, property activity, and credit demand remain weak, highlighting persistent challenges in the world's second-largest economy even as its manufacturing and export sectors show resilience.
Retail Sales Decline
Retail sales, a key indicator of consumer spending, fell by 0.6% year-on-year in May, reversing a 0.2% increase recorded in April. According to the report, this marks the first annual decline in retail sales since December 2022.
Consumer Confidence and Credit Growth Weak
The weakness in household spending is also reflected in consumer sentiment. The Jefferies report notes that China's consumer confidence index dropped 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 highlights a lack of improvement in credit growth. Renminbi bank loan growth and private-sector credit growth both slowed to 5.5% year-on-year in May, suggesting that 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 by 12.1% year-on-year during the January-May period, while the value of property sales dropped by 14.1%, the report notes.
However, there are signs of stabilization in the country's largest urban centers. According to Jefferies, new home prices in China's tier-one cities increased for a fourth consecutive month in May, suggesting that 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 states that exports of goods rose by 19.4% year-on-year in US dollar terms to $377 billion in May, while imports climbed 27.4% to $271 billion.
A particularly strong area has been semiconductor-related exports. According to the report, exports of electronic integrated circuits surged 111% 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% from a year earlier.
Overall, Jefferies concludes that China's economy remains heavily reliant on exports and manufacturing strength, while domestic consumption, property investment, and credit demand continue to lag.
