China’s retail sales growth accelerated in January-February, offering a boost to policymakers aiming to bolster domestic consumption. However, rising unemployment and easing factory output highlight ongoing economic challenges, particularly as new US trade tariffs add further pressure.
Policymakers have prioritized expanding domestic demand to counteract the impact of President Donald Trump’s aggressive tariff policies targeting China’s exports. Yet, analysts warn that Beijing’s goal of achieving “around 5%” GDP growth in 2025 may be difficult given weak household demand and the nation’s prolonged property crisis.
Retail Sales Beat Expectations
Data from the National Bureau of Statistics (NBS) released Monday showed that retail sales rose 4.0% in the January-February period, outpacing the 3.7% rise in December. The increase marks the strongest retail growth since November 2024 and aligns with analyst expectations.
The rise in household consumption was buoyed by Lunar New Year holiday spending, with China’s box office setting new records thanks to animated hit “Nezha 2.”
In response to weakening consumer confidence, China’s leadership has pledged stronger fiscal and monetary support. Measures include:
- 300 billion yuan ($41.5 billion) allocated for a consumer goods trade-in scheme targeting electric vehicles, appliances, and other goods.
- New income-boosting measures and a childcare subsidy scheme to support household spending.
- A commitment from the People’s Bank of China to maintain ample liquidity through reserve requirement ratio (RRR) cuts.
“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, he warned that the effect may “fade over time,” with auto sales already declining in early 2025.
Rising Unemployment and Trade Pressures
Despite encouraging retail data, China’s urban unemployment rate rose to 5.4% in February, the highest level in two years, reflecting ongoing economic stress.
Adding to the strain, President Trump has implemented an additional 20% tariff on all Chinese goods, with threats of further action. Exports, which were a rare bright spot for China’s economy in 2024, now face fresh headwinds.
“The risk to the economy is the damage from higher US tariffs on China’s exports, which will likely show up in trade data over the next few months,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.
Factory Output and Property Sector Remain Weak
With factories temporarily shutting down for the Lunar New Year, industrial output grew 5.9% year-on-year in January-February, slowing from the 6.2% expansion in December. However, the figure still exceeded expectations of 5.3% growth.
Fixed asset investment—which includes infrastructure and property spending—grew 4.1%, up from 3.2% in 2024. However, the real estate sector remains fragile:
- Property investment fell 9.8% in early 2025, following a 10.6% decline in 2024.
- Government officials acknowledged continued housing market pressures despite some signs of stabilization.
Goldman Sachs analysts warned that China’s brief export boom from late 2024 may have subsided, and the negative effects of higher US tariffs could start weighing on the economy.
Outlook: Growth Challenges Persist
China’s growth outlook remains uncertain, with analysts forecasting uneven economic momentum throughout 2025.
“We expect the recovery to continue over the coming months, but given the broader headwinds weighing on China’s economy, we don’t expect any near-term improvement to be sustained for long,” said Zichun Huang, China economist at Capital Economics.
