China’s retail sales post first decline in over 3 years

China's retail sales have dropped for the first time in three years amid weak domestic demand, even as the country's export sector continues to surge. 

According to the National Bureau of Statistics (NBS), retail sales—a critical metric for consumer spending—fell by 0.6% year-on-year in May this year. This downturn marks the first annual decline since Beijing dismantled its strict pandemic lockdowns at the end of 2022, reversing a marginal 0.2% increase recorded in April.

Despite the contraction in May, cumulative figures for the first five months of the year managed to stay in positive territory. From January to May, total retail sales of consumer goods reached 20,603.1 billion yuan, representing a 1.4% increase year-on-year. When excluding the volatile automotive sector, broader consumer goods purchases performed slightly better, rising 2.7% to reach 19,002.2 billion yuan over the same five-month period.

For May specifically, total retail sales accounted for 4,109.0 billion yuan, though non-automotive consumer goods managed to edge up by 1.1% to 3,778.1 billion yuan, cushioning the overall headline decline.

A closer look at geographic and consumption patterns highlights the structural unevenness gripping the domestic economy. From January to May, urban retail sales rose 1.2% year-on-year to 17,866.2 billion yuan, while rural consumption grew faster at 2.6% to reach 2,736.9 billion yuan.

However, May brought sharp reversals to the cities, with urban retail sales dropping 0.9% year-on-year, while rural areas maintained a modest 1.5% expansion. In terms of consumption type, the first five months saw goods sales rise 1.2% and the catering sector grow by 3.1%. Yet in May, goods sales fell 0.7%, while catering growth slowed down significantly to a marginal 0.6% increase.

The shifting habits of Chinese consumers are also reshaping the retail landscape, driving a clear divergence across different commercial formats. Traditional brick-and-mortar operations felt the brunt of the downturn between January and May, with specialty stores dropping 1.2% , department stores falling 1.8%, and brand-exclusive stores plunging 7.6% year-on-year. In contrast, necessity-driven brick-and-mortar formats proved resilient, as convenience stores and supermarkets saw sales rise by 6.8% and 3.6%, respectively.

Meanwhile, the migration toward eCommerce remains a primary driver of growth. For the first five months of the year, China’s total online retail sales of goods and services expanded by 5.9% year-on-year to reach 8,317.7 billion yuan. Online sales of physical goods specifically grew by 5%, powered by double-digit demand for food at 15.5%, alongside more modest gains in clothing and daily necessities at 7.2% and 1.6%, respectively.

Digital services also showed robust momentum, growing 7.6% over the same period. Ultimately, while digital and necessity-driven channels remain active, the overarching deceleration in physical retail points to an economy heavily reliant on external trade to offset weakening domestic momentum.

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