The collapse of the Chinese catering industry began even before the economic downturn hit. (Video screenshot)
[People News] On June 16, the National Bureau of Statistics released the economic data for May, which completely undermined the official narrative of an economic recovery. Although the Bureau described the situation as 'generally stable, moving towards new and better,' the data reveals a rare negative turn in consumption, a significant decline in investment, a continued collapse in the real estate sector, weakness in the private sector, and consumer confidence plummeting to freezing levels. These indicators clearly point to a structural trap characterised by 'strong supply and weak demand.' While external demand and high-tech manufacturing may provide short-term relief, they cannot conceal the deep crisis resulting from the collapse of domestic demand.
The demand side is experiencing a severe crash, with both consumption and investment hitting new lows in years.
In May, the total retail sales of consumer goods reached 41,090 billion yuan, marking a year-on-year decrease of 0.6%. This is the first month of negative growth since the end of 2022 following the pandemic, significantly exceeding market expectations. From January to May, cumulative growth was only 1.4%. Excluding automobiles, retail sales of consumer goods grew by 2.7%, but overall consumption remains notably weak. The policy of replacing old products with new ones has surged over the past couple of years, but it is now reaching its limit, with diminishing marginal effects on appliances. Automobile consumption has also cooled significantly, and the prevailing sentiment among residents is one of reluctance to spend, even when they have the money.
According to data from the National Bureau of Statistics, the average growth rate of China's total retail sales of consumer goods was 13.45% in the 2000s and 12.32% in the 2010s. However, by the 2020s, this growth rate has been halved again, now standing at a meager 1.4%, nearly stagnant. In May, a negative growth of 0.6% was recorded. This reflects the lessons imparted by Xi Jinping, as people are forced to tighten their belts and live more frugally. The root cause of this situation is the stagnation of residents' income. On June 18, Bloomberg reported that the crisis of bad consumer loans in China is worsening, with last year's non-performing household debt surging by 21% to over 22.2 trillion yuan, affecting an estimated 100 million people who are overdue on their repayments.
The investment sector is facing an even more severe decline. From January to May, fixed asset investment (excluding rural households) totaled 17.8512 trillion yuan, marking a year-on-year decrease of 4.1%, which far exceeded expectations. Even when excluding real estate, the decline was still 1.2%. Private investment fell by 7.1%, and after excluding real estate, it dropped by 3.5%, while manufacturing investment decreased by 0.4%. Real estate development investment plummeted by 16.2%, with the sales area of new commercial housing down by 10.8% and sales revenue down by 13.5%. Infrastructure investment saw only a slight increase of 0.6%, and although investment in high-tech industries grew by 4.5%, it is insufficient to cover the significant shortfalls in traditional sectors. The investment engine is not only structurally damaged but has completely failed, leading to a severe collapse of confidence in private capital.
Industrial production appears to be less dire than expected. In May, the added value of industrial enterprises above a designated size rose by 4.5% year-on-year, with a month-on-month acceleration of 0.4 percentage points, leading to a cumulative growth of 5.4% from January to May. The equipment manufacturing sector saw an increase of 9.5%, while high-tech manufacturing surged by 15.1%. Notably, the outputs of 3D printing equipment, lithium batteries, and industrial robots grew significantly by 54.4%, 40%, and 27.9%, respectively. However, when examining the performance by economic type, private enterprises only experienced a growth of 2.7%, and foreign-invested enterprises, including those from Hong Kong, Macao, and Taiwan, fared even worse at 1.9%. State-controlled enterprises saw a growth of 3.7%. The new momentum for growth largely depends on government policy support and the initiatives of leading companies, while many small and medium-sized enterprises are disengaged from competition, adopting a wait-and-see approach and a passive stance, making overall survival challenging.
In terms of foreign trade, the total import and export volume in May increased by 16.9%, with exports rising by 13.8% and imports by 21.5%, resulting in a cumulative increase of 15.3% from January to May. However, while exports show resilience, they also reveal vulnerabilities; an economy reliant on foreign trade is unsustainable. Recently, the European Union has been preparing for a trade confrontation with the Chinese Communist Party (CCP). Following the blockage of CCP exports by the United States, a significant amount has been redirected to Europe, prompting a backlash from the EU.
On the price and employment front, the Consumer Price Index (CPI) remains low and fluctuating, while the Producer Price Index (PPI) has expanded to 3.9%, indicating a low inflation environment amid insufficient demand, yet the economy is still far from overcoming deflation. The manufacturing Purchasing Managers' Index (PMI) stands at the critical threshold of 50%, but the index reflecting business expectations for production and operational activities indicates a severe lack of confidence. The urban surveyed unemployment rate is approximately 5.1%-5.2%, and the youth employment rate coincides with graduation season, with the actual employment rate being significantly lower than the official statistics.
The K-shaped divergence is intensifying, and balance sheets continue to deteriorate.
The May data further reinforces the K-shaped divergence in the economy: while high-end manufacturing and export sectors show impressive growth, traditional domestic demand and private small and medium-sized enterprises are struggling significantly. New productive forces are experiencing rapid growth under supportive policies, but this growth is not effectively translating into increased income and consumption for residents. Although the supply side, driven by high technology, is expanding robustly, the demand side continues to contract, creating a vicious cycle of supply-demand mismatch.
The long-term burden of the real estate sector has become a settled issue, emerging as a core challenge that impedes economic growth. The real estate market is facing a triple decline in investment, sales, and prices, which adversely affects both upstream and downstream industrial chains, local land finances, and the wealth effect for residents. The household sector is compelled to deleverage, with an overall net decrease of 141.2 billion yuan in household loans in May, reflecting a year-on-year reduction of 195.2 billion yuan. This includes a negative increase of 84 billion yuan in short-term loans and a negative increase of 57.1 billion yuan in medium- and long-term loans, indicating a clear trend of ongoing net repayment. Corporate medium- and long-term loans are also showing signs of weakness, with real financing demand remaining low. In May, new social financing amounted to approximately 2.03 trillion yuan, but a significant portion of this was attributed to government bond financing, which has become the primary source of liquidity, underscoring the weakness in real entity credit.
A more alarming crisis of confidence is rapidly developing. Residents are reducing their consumption due to uncertainties in employment, low income expectations, and inadequate social security; businesses are reluctant to invest because of unclear future prospects, debt pressures, and overcapacity; and private capital is skeptical of government policies and is unwilling to invest. This ongoing contraction of balance sheets and persistent recession strongly resembles the characteristics of Japan's lost thirty years.
The Chinese Communist Party's (CCP) '15th Five-Year Plan' places a strong emphasis on new productive forces; however, the underlying issue of weak domestic demand presents a fundamental deadlock that the CCP is unable to resolve. To enhance domestic demand, it is essential to increase residents' incomes, distribute wealth among the populace, and establish a fair and transparent distribution system—objectives that the CCP has proven incapable of achieving. There is a stark disconnect between the optimistic narrative presented by official data and the micro-level experiences of the public, which has become a significant social concern. The collapse of the CCP's economic data in May reveals the true challenges facing the macroeconomy. This situation transcends mere economic calculations; the ongoing economic collapse is profoundly undermining the legitimacy of the CCP's governance.
(First published in People News)△
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