China’s retail sales growth quickened in January-February in a welcome sign for policymakers’ efforts to boost domestic consumption even as joblessness rose and factory output eased, underscoring the strains on an economy facing fresh US tariff pressure.
Policymakers have put expanding domestic demand as the top priority this year as they try to cushion the impact of the Trump administration’s tariffs on its crucial export engine.
China’s top leaders have maintained an economic growth target of “around 5 per cent” for 2025, but analysts say that may be a tall order given pressure on exports, tepid household demand and a protracted property crisis.
The data followed weaker-than-expected exports and inflation indicators earlier this month, highlighting the need for more policy support to foster a sustainable economic recovery.
“The risk to the economy is the damage from higher US tariffs on China’s exports which will likely show up in the trade data over the next few months,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.
“I think Beijing will continue its current policy stance. There is no urgency to loosen monetary policy by cutting RRR or interest rate at this stage,” he said, adding that policymakers may choose to wait for a few months before cutting rates given the trade uncertainties.
Data released by the National Bureau of Statistics (NBS) on Monday showed retail sales, a gauge of consumption, rose 4 per cent in the January-February period, better than a 3.7 per cent rise in December and marking the quickest rate since November 2024. Analysts had expected retail sales to grow 4 per cent.
Household consumption in the first two months was buoyed by holiday spending during the 8-day Lunar New Year holidays, when China’s box office raked in record takings with animated hit “Nezha 2”.
In the annual parliament meeting earlier this month, China’s leaders pledged stronger fiscal and monetary support for the economy, with a particular emphasis on spurring domestic consumption.
Among other measures, they have lined up 300 billion yuan (US$41.5 billion) for a recently-expanded consumer goods trade-in scheme for electric vehicles, appliances and other goods.
“Retail sales growth was decent, reflecting the vital role of subsidies in supporting home appliance and mobile phone sales,” said Tianchen Xu, senior economist at the Economist Intelligence Unit.
However, the effect of the scheme may “fade over time”, with auto sales already down in the first two months, he added.
The NBS data showed home appliance and audio-visual device sales grew 10.9 per cent, compared with December’s 39.3 per cent jump. Catering revenue, however, rose 4.3 per cent underpinned by the festival boost, faster than the 2.7 per cent rise in December.
On Sunday, China unveiled a “special action plan” to boost domestic consumption, featuring measures including increasing residents’ income and establishing a childcare subsidy scheme.
Officials from the country’s top economic ministries will brief media on consumption-boosting measures later on Monday.
Chinese stocks were roughly flat as investors assessed the mixed set of economic data.
Unemployment, Trump woes
Highlighting the stress facing households, the urban survey-based jobless rate in February climbed to 5.4 per cent, the highest in two years.
US president Donald Trump has piled an additional 20 per cent of tariffs on all Chinese goods and is threatening more action. Exports were one of the lone bright spots for China’s economy last year.
With factories shutting down temporarily during the Lunar New Year holidays, China’s industrial output grew 5.9 per cent year-on-year in the first two months, slowing from the 6.2 per cent expansion in December. However, it was ahead of expectations for a 5.3 per cent rise.
China publishes data for the two months in a combined release to smooth out the impact of the LNY holidays, which fall in either of the two months.
Fixed asset investment, which includes property and infrastructure investment, expanded 4.1 per cent in the January-February period year-on-year, versus expectations for a 3.6 per cent rise. It grew 3.2 per cent in 2024.
The real estate sector, while showing some improvement, remained frail and underlined the low investor confidence.
Property investment fell 9.8 per cent in the first two months of 2025 year-on-year, after tumbling 10.6 per cent in 2024. An NBS spokesperson said the country’s housing market faces some pressure despite signs of stabilising.
That suggests policymakers will have their work cut out in their efforts to keep the economy on an even keel amid the threat of more US tariffs.
In a note to clients, Goldman Sachs analysts said the boost from exporters’ frontloading late last year may have subsided and the adverse effect from higher US tariffs may have started to kick in.
“January-February activity data and our high-frequency tracker for early March pointed to a modest slowdown in sequential GDP growth momentum in the first quarter vs the fourth quarter in 2024.”
For 2025 as a whole, some analysts say the growth impulse could be uneven.
“China’s economy had a decent start to the year, likely driven by fiscal stimulus,” said Zichun Huang, China economist at Capital Economics.
“We expect the recovery to continue over the coming months, but given the wider headwinds weighing on China’s economy, we don’t expect any near-term improvement to be sustained for long.”
