China’s Factory Output Slows to Six-Month Low Amid Uneven Economic Recovery and Rising Trade Pressures

 Beijing, June 17 — China's industrial production growth slipped to a six-month low in May, underscoring mounting challenges for the world’s second-largest economy as it navigates the dual strain of U.S. trade tensions and a protracted property sector slump. However, a notable uptick in retail sales provided a temporary lift, aided by seasonal spending and state-backed consumer incentives.

Data released by the National Bureau of Statistics on Monday showed industrial output rose 5.8% year-on-year in May, down from 6.1% in April and below the 5.9% consensus forecast in a Reuters poll. This marked the weakest pace of growth since November 2023.

The slowdown comes amid escalating deflationary pressures, weakening investor confidence, and a continued decline in new home prices, reflecting deep-seated fragility in the property market—long a cornerstone of China’s economic engine.

While external demand remained mixed, total exports rose 4.8% in May. However, outbound shipments to the United States plummeted by 34.5%, the sharpest drop since February 2020, illustrating the ongoing fallout from President Donald Trump’s renewed tariff offensive. Last week, Trump declared a new trade deal framework was reached with Beijing, confirming that U.S. tariffs on Chinese goods would reach a cumulative 55%, incorporating existing 25% duties introduced during his first term.

Retail Rebound Offers Limited Relief

Retail sales grew at a faster pace in May, buoyed by strong consumer spending during the Labour Day holidays, an early start to the annual “618” online shopping festival, and a government-subsidized appliance trade-in program. However, economists caution the gains may prove short-lived.

“Where stimulus exists, there is a response—as seen in appliance sales—but sectors without targeted support, like property development, continue to falter,” said Tianchen Xu, senior economist at the Economist Intelligence Unit. Xu warned of a potential “triple whammy” ahead for private consumption, citing tighter spending restrictions on government officials, the waning impact of the front-loaded shopping festival, and the suspension of consumer subsidies.

Investment and Employment Trends

Fixed asset investment grew 3.7% in the January–May period compared to a year earlier, narrowly missing expectations of 3.9% and decelerating from 4.0% growth in the first four months of the year. Investment in the property sector remained subdued despite various government support measures.

On the employment front, China's urban survey-based unemployment rate edged slightly lower to 5.0% in May from 5.1% in April, indicating some resilience in the labor market despite broader economic headwinds.

Stimulus Measures and Outlook

In response to mounting economic pressures, Beijing introduced a fresh round of stimulus in May, including interest rate reductions and a large-scale liquidity injection. Nevertheless, analysts remain cautious about China’s ability to meet its 2025 GDP growth target of “around 5%,” warning that policy support, while welcome, may not be sufficient to overcome structural challenges and persistent global headwinds.

“The near-term outlook remains clouded by weak property dynamics, high external tariffs, and softening global demand,” noted several economists. “While headline indicators may find occasional support, underlying momentum remains fragile.”

As the geopolitical and economic landscape continues to evolve, China’s leadership faces the complex task of balancing growth stabilization with long-term reform, all while navigating a volatile and uncertain global trade environment.