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China economy weakens further in May as retail sales post first drop in over three years
China's retail sales fell for the first time in over three years in May, dropping 0.6% year-on-year, according to data released Tuesday by the National Bureau of Statistics. This marked the first decline since December 2022, as the Labor Day holiday failed to boost sluggish consumer spending. The figure was worse than the Reuters poll forecast of no change. Urban fixed-asset investment, including real estate and infrastructure, contracted 4.1% year-to-date through May, more than the expected 2% decline and deepening from 1.6% in the first four months. Real estate investment fell 16.2% in the January-to-May period, while manufacturing fixed-asset investment contracted for the first time since December 2020. Infrastructure investment grew 0.6%. Industrial output was a bright spot, rising 4.5% in May, beating estimates of 4.3% and rebounding from April's near three-year low of 4.1%. The national unemployment rate edged down to 5.1% from 5.2% in April. The statistics bureau noted an "acute" domestic imbalance between strong supply and weak demand, calling for new technology development and greater employment support. The economy slowed after a strong first quarter, with April data showing broad weakness. In May, the official manufacturing gauge slowed to 50, the threshold between expansion and contraction. During the early May holiday, per capita spending lagged behind 2025 levels as consumers became more price-conscious. Economists describe a "K-shaped" growth model, with robust manufacturing and exports offsetting weakness in property and consumer spending. Exports saw double-digit growth in April and May, boosted by renewables and AI demand, while the Iran war pushed up commodity costs, easing deflation. Producer inflation rose at the fastest pace in nearly four years in May, but consumer inflation remained modest at 1.2%, as upstream suppliers absorbed higher costs.