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Corporate and Investment Bank
Standard Bank Group
Inside China 17 June 2026

Soft data, hard transition

Jeremy Stevens

  • The data for May is now in, and, together with April, this confirms what early indicators had implied: GDP growth expectations for Q2 are wrong.
  • Industrial production was 4.5% year on year (y/y) in May, a marginal bounce from April's 4.1% y/y, but still below the three-year trend. This bounce was export-driven, not demand-driven. Factories were running to fill front-loaded orders and replenish chip inventories, not because domestic capex is recovering.
  • Manufacturing investment collapsed to -0.4% year to date (YTD), contracting by 4.3% y/y and 4.2% y/y in April and May respectively. In crude terms, only New Productive Forces and exports are seeing any NPF capex. Traditional manufacturing is seemingly in an investment recession.
  • Exports surged 19.4% y/y in May, but the composition reveals the same mechanics: chip exports jumped 110% y/y. Clearly, the NPF transition in export share is real but it is still narrow. NPF share has risen, from 8.5% in early 2022, to 13% in recent months. Meanwhile, traditional manufacturing still dominates, at over 80%.
  • Imports surged 27.4% y/y, but volumes fell. This has been a price story, not a demand story. The Iran war has meant that the import bill is rising because of prices, not because China is consuming more.
  • The litmus: producer prices accelerated to 3.9% y/y in May, a third consecutive acceleration. Already vulnerable manufacturers are absorbing these costs because they cannot pass them on due to to weak demand.
  • Consumer prices are anchored at 1.2% y/y, but core CPI hit 1.9%, the fastest in almost four years. The gap between PPI and CPI is a margin squeeze. For the most part, manufacturers are taking the hit, not consumers.
  • Retail sales went negative for the first time in this cycle: minus 0.6% in May. This is a three-month slide from 1.7% in March, to 0.2% in April, to outright contraction. This is not what Beijing wanted.
  • Services sales are holding up at 5.4% y/y, but this is weak by own recent standards, and it hardly reflecting its shift up the policy hierarchy. Further, the base is narrow.
  • Infrastructure slumped from -4.5% y/y in April, to -9.5% in May. SPB issuance contracted in both April and May. Local governments are fiscally exhausted, and the central government has jumped into the void.
  • Property investment is still contracting, at minus 13.4% year-to-date. With demand structurally depressed and second-hand homes now 72% of transactions in 30 cities, the sector will keep grinding lower. There is no policy appetite for another stimulus cycle.
 

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