China’s domestic economy continues to face significant headwinds despite strong export growth, with consumer spending, real estate activity and credit demand remaining weak, according to Jefferies’ latest market strategy report.The report said there was “a continued lack of evidence of a recovery in domestic demand,” highlighting ongoing challenges in the world’s second-largest economy even as the manufacturing and export sectors remain resilient.Retail sales, a key measure of consumer spending, fell 0.6 percent year-on-year in May, compared to a 0.2 percent increase recorded in April.According to the report, this represents the first annual decline in retail sales since December 2022.
Consumer confidence and credit growth remain weak
The weakness in household spending is also reflected in consumer sentiment. According to a Jefferies report, China’s consumer confidence index fell to 89.0 in April from 91.6 in February, indicating continued caution among consumers despite policy support measures aimed at boosting demand.The report also highlighted the lack of improvement in credit growth. Renminbi bank loan growth and private sector credit growth slowed to 5.5 percent year on year in May, indicating that companies and households are still reluctant to borrow and invest.
The real estate sector is still under pressure
China’s real estate market, long considered a mainstay of economic growth, continues to suffer. The report indicated that residential spaces sold decreased by 12.1 percent on an annual basis during the period from January to May, while the value of real estate sales decreased by 14.1 percent.However, there have been signs of stabilization in the country’s largest urban centers.According to Jefferies, new home prices in China’s first-tier cities rose for the fourth straight month in May, suggesting that prices may have bottomed out in some key markets.
Exports and chip shipments provide bright spots
Although domestic demand remains weak, China’s export sector continued its strong performance. The report said that merchandise exports rose 19.4 percent year-on-year in US dollars to $377 billion in May, while imports rose 27.4 percent to $271 billion.Semiconductor-related exports were a particularly strong area. According to the report, exports of integrated electronic circuits rose 111 percent year on year to a record high of $35.5 billion in May.Shipments of these products reached $139 billion in the first five months of 2026, an increase of 90 percent from the previous year.Overall, Jeffries concluded that China’s economy remains heavily dependent on exports and manufacturing strength, while domestic consumption, real estate investment and demand for credit remain lagging.