China's retail sales growth accelerated in January and February, offering encouragement for policymakers aiming to stimulate domestic consumption even as rising unemployment and declining factory output highlight the economic challenges, especially amid renewed trade tensions with the U.S.
Policymakers have put expanding domestic demand as the top priority this year as they try to cushion the impact of the Trump administration's tariffs on its crucial export engine.
China's top leaders have maintained an economic growth target of "around 5%" for 2025, but analysts say that may be a tall order given the pressure on exports, tepid household demand and a protracted property crisis.
The data followed weaker-than-expected exports and inflation indicators earlier this month, highlighting the need for more policy support to foster a sustainable economic recovery.
"The risk to the economy is the damage from higher U.S. tariffs on China's exports which will likely show up in the trade data over the next few months," said Zhiwei Zhang, chief economist at Pinpoint Asset Management.
"I think Beijing will continue its current policy stance. There is no urgency to loosen monetary policy by cutting RRR or interest rate at this stage," he said, adding that policymakers may choose to wait for a few months before cutting rates given the trade uncertainties.
Data released by the National Bureau of Statistics (NBS) on Monday showed retail sales, a gauge of consumption, rose 4% in the January-February period, better than a 3.7% rise in December and marking the quickest rate since November 2024. Analysts had expected retail sales to grow 4%.
Household consumption in the first two months was buoyed by holiday spending during the eight-day Lunar New Year holidays, when China's box office raked in record takings with the animated hit "Nezha 2."
In the annual parliament meeting earlier this month, China's leaders pledged stronger fiscal and monetary support for the economy, with a particular emphasis on spurring domestic consumption.
Among other measures, they have lined up 300 billion yuan ($41.5 billion) for a recently expanded consumer goods trade-in scheme for electric vehicles, appliances and other goods.
"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, the effect of the scheme may "fade over time," with auto sales already down in the first two months, he added.
The NBS data showed home appliance and audio-visual device sales grew 10.9%, compared with December's 39.3% jump. Catering revenue, however, rose 4.3% underpinned by the festival boost, faster than the 2.7% rise in December.
On Sunday, China unveiled a "special action plan" to boost domestic consumption, featuring measures including increasing residents' income and establishing a child care subsidy scheme.
Addressing a press conference in the afternoon, an official from the country's top economic planner acknowledged the weak consumer confidence, while the People's Bank of China pledged to keep liquidity ample via measures such as cuts to the reserve requirement ratio.
China's Shanghai Composite Index closed up 0.2%, while the Chinese yuan was steady against the dollar, as markets took in stride the mixed set of economic data.
Highlighting the stress facing households, the urban survey-based jobless rate in February climbed to 5.4%, the highest in two years.
U.S. President Donald Trump has piled an additional 20% of tariffs on all Chinese goods and is threatening more action. Exports were one of the lone bright spots for China's economy last year.
With factories shutting down temporarily during the Lunar New Year holidays, China's industrial output grew 5.9% year-over-year in the first two months, slowing from the 6.2% expansion in December. However, it was ahead of expectations for a 5.3% rise.
China publishes data for the two months in a combined release to smooth out the impact of the LNY holidays, which fall in either of the two months.
Fixed asset investment, which includes property and infrastructure investment, expanded 4.1% in the January-February period year-over-year, versus expectations for a 3.6% rise. It grew 3.2% in 2024.
The real estate sector, while showing some improvement, remained frail.
Property investment fell 9.8% in the first two months of 2025 year-over-year, after tumbling 10.6% in 2024. An NBS spokesperson said the country's housing market faces some pressure despite signs of stabilizing.
That suggests policymakers may struggle to keep the economy on an even keel amid the threat of more U.S. tariffs.
In a note to clients, Goldman Sachs analysts said the boost from exporters' frontloading late last year may have subsided and the adverse effect from higher U.S. tariffs may have started to kick in.
"January-February activity data and our high-frequency tracker for early March pointed to a modest slowdown in sequential GDP growth momentum in the first quarter vs the fourth quarter in 2024."
For 2025 as a whole, some analysts say the growth impulse could be uneven.
"We expect the recovery to continue over the coming months, but given the wider 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.
