China's retail sales outpace forecasts despite trade war pressures

China’s retail sector showed unexpected strength last month, offering a glimmer of hope for the world’s second-largest economy amid ongoing trade tensions with the United States.

Official data released Monday by the National Bureau of Statistics (NBS) revealed that retail sales rose 6.4% year-on-year in May, outperforming economists' expectations of 4.9% growth as predicted by a Bloomberg survey. This marked a notable acceleration from April’s 5.1% increase.

However, not all indicators were as positive. Industrial production grew by a modest 5.8%, falling short of analysts' projections.

Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, described the retail figures as a "surprise," though he cautioned that uncertainties continue to cloud the economic outlook for the rest of the year.

According to the NBS, the economy "maintained stability" in May, aided by the government's more "proactive and effective macro policies." Still, it acknowledged ongoing challenges, citing "many unstable and uncertain external factors" and a need to boost domestic demand further.

China has been wrestling with multiple structural issues since the pandemic, including weak consumer confidence and a protracted property sector debt crisis. The NBS reported that commercial property prices across a sample of 70 cities continued to fall in May, underscoring ongoing consumer caution.

Meanwhile, the unemployment rate — closely watched amid concerns about job prospects for young people — edged down slightly to 5% in May from 5.1% in April.

Beijing has set a 5% growth target for this year, but its efforts are complicated by enduring trade tensions with Washington. The prolonged tariff war, which began after former U.S. President Donald Trump took office, remains unresolved despite a temporary pause on new retaliatory measures.

Trade delegations from both nations met in London this month for a second round of negotiations. While President Trump claimed that the talks had resulted in an agreement to preserve the current truce, Chinese lead negotiator Li Chenggang described the discussions as "very professional" but stopped short of confirming any finalized deal.