China’s Consumption Slump Deepens as Retail Sales and Investment Miss Forecasts

Gerik

Summary:

China’s retail sales grew just 1.3% in November, well below expectations, adding to fears about weakening domestic demand. Investment and industrial output also disappointed, reinforcing calls for stronger stimulus to sustain growth....

Consumer Spending Falters Despite Policy Pledges

Fresh data released by China’s National Bureau of Statistics reveals a sobering picture of the world’s second-largest economy: retail sales in November rose a mere 1.3% year-over-year, significantly below the 2.8% forecast and a sharp slowdown from October’s 2.9% gain. This figure reflects not only subdued household consumption but also the broader structural weakness in China’s post-pandemic recovery, where domestic demand has failed to gain meaningful traction.

Retail performance was further hampered by a fall in auto sales and a weaker-than-expected Singles’ Day shopping season. While platforms extended promotional periods, gross merchandise value only grew 12%, compared to 20% in 2024. According to Syntun, this suggests consumers are still wary about spending amid economic uncertainty.

Industrial Output and Investment Also Disappoint

The malaise isn’t limited to consumer spending. Industrial production increased 4.8% in November, slightly below the 5% forecast, while fixed asset investment an important gauge of long-term confidence fell 2.6% between January and November. This decline was the steepest since 2020 and deeper than the 2.3% contraction predicted by economists.

The property sector remains a key drag. Real estate investment plummeted 15.9% in the first 11 months of 2025, with new home prices in tier-1 cities dropping 1.2% and resale prices falling 5.8% year-on-year. The steepening drop across 70 major cities signals that the bottom of the housing slump may still be out of reach.

Policy Response: Stimulus Plans Gain Momentum

In response to the deteriorating indicators, Chinese policymakers have pledged more fiscal support. The Ministry of Finance announced plans to issue ultra-long-term special bonds in 2026, with proceeds aimed at infrastructure, equipment upgrades, and consumer trade-in programs. Additionally, an increase in the central government budget for investment is being planned to reverse the ongoing slump in fixed asset investment.

Still, the outlook remains clouded. As Zhiwei Zhang from Pinpoint Asset Management noted, the weakening in investment and falling property prices are eroding consumer sentiment, making stronger, faster policy intervention essential especially in Q1 2026.

Structural Concerns and Global Imbalance

Despite domestic headwinds, China’s trade remains robust. The country posted a record trade surplus of $1.1 trillion by November, already surpassing the 2024 full-year record. However, this raises global concerns about China’s continued overreliance on exports. IMF Managing Director Kristalina Georgieva recently urged Beijing to pivot more decisively toward internal consumption.

Economist Eswar Prasad echoed this sentiment, warning of unsustainable growth patterns. In a recent article, he highlighted the urgent need for structural reforms such as enhancing the labor market, strengthening social safety nets, and revitalizing private enterprise to restore consumer confidence and rebalance the economy.

November’s data shows a clear deceleration in China’s consumer economy, industrial output, and investment confidence. While the government’s pledge to expand fiscal spending and issue long-dated bonds signals a willingness to act, economists remain concerned about the lack of urgency and clarity around structural reforms. With unemployment stagnant at 5.1% and domestic demand weak, China may struggle to meet its “around 5%” growth target in 2026 unless bold and targeted measures are rolled out soon.

Source: CNBC

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