The news: China retail sales jumped 6.4% YoY in May, per official data. That outpaced expectations for a 5% increase and marked an acceleration from April’s 5.1% growth.

What it means: While the stronger-than-expected retail sales are a promising sign for the country’s beleaguered economy, conditions on the ground remain highly challenging. Even a government spokesperson noted the difficulties in a press conference following the release of the monthly figures.

The biggest hurdle is that shoppers need incentives to spend.

• Government subsidies have driven much of this year’s retail sales growth, aiding sales in categories like appliances, electronics, and autos. But they might be working too well: Funds are running out faster than planned, forcing some local governments to restrict access ahead of the crucial 618 shopping festival.
• Monthlong shopping festivals are becoming the norm. Alibaba’s Tmall, JD.com, and Douyin started 618 deals as early as May 13, in part to capitalize on the subsidies, which drove an early boost in sales. Retailers took a similar tack during last year’s Singles Day, with sales starting the month before—and are likely to do so again this year as sentiment remains subdued.

Our take: China’s economy is in a precarious position. Consumer spending remains highly uncertain and dependent on incentives like subsidies or discounts—even as businesses operate on razor-thin margins that are under further pressure due to US tariffs.

Still, the success of China’s consumer goods trade-in program clearly shows that a more comprehensive stimulus plan will successfully juice spending—although whether that’s enough to enable the country to weather a trade war remains an open question.

Go further: Check out our Infopack on China Shoppers 2025.