Widespread Slowdown in China's Economy Amid Weak Investment and Consumption

SadaNews - China's growth has widely slowed down in April, with investment returning to decline, while retail sales and industrial production fell short of expectations, highlighting the fragility of the economy in the face of a global energy crisis.

Investment in fixed assets unexpectedly shrank by 1.6% in the first four months of 2026 compared to the previous year, after rising by 1.7% in the first quarter. Retail sales also came in below expectations, increasing by only 0.2% in April, according to data released by the National Bureau of Statistics on Monday.

Moreover, industrial production grew at a slower-than-expected rate of 4.1% last month, marking the weakest pace in nearly three years. The survey-based urban unemployment rate declined to 5.2%, after hitting a one-year high of 5.4% in March.

The retail sales reading was the worst since its contraction in December 2022, when China reopened its economy following the COVID-19 pandemic and infections spread widely. No economist surveyed by Bloomberg had anticipated such a pessimistic reading for industry, retail sales, and investment.

The National Bureau of Statistics stated: "China's economy continued to stabilize and improve." It added: "But we also need to see that the external situation is complex and changing, and the issue of supply-side constraints versus weak demand remains prominent. Some companies are facing difficulties in operations."

Exports Mitigate the Impact of Domestic Weakness

The disappointing performance of the world's second-largest economy last month came after strong trade, driven by a global investment boom in artificial intelligence, helped keep growth on track to meet Beijing's target of 4.5% to 5%.

The flourishing exports shield China from the repercussions of the war in Iran, although the negative consequences of rising oil prices are evident on factory floors, while manufacturers cope with a surge in raw material costs.

Market reactions were relatively muted following the data release. The yuan fell by 0.1% in offshore trading to approach 6.8215 against the dollar, its weakest level in nearly two weeks. The yield on benchmark 10-year government bonds remained steady at 1.76%, while the losses in 30-year bond futures were reduced.

Zhang Qiwei, chief economist at Pinpoint Asset Management, said: "Economic activities were weaker than the market expected in April." He added: "The strong performance of exporters helped alleviate the weaknesses in domestic demand, but it was not enough to fully compensate for them."

Domestic Consumption Remains Under Pressure

Chinese exports are expected to remain robust after rising 15% in the first four months compared to the previous year. The stability of trade relations with the United States, supported by President Donald Trump's visit to Beijing, enhances the outlook.

However, there is no sign of a turnaround in domestic consumption. New loans to households fell last month, with limited signs of improvement in consumer confidence.

The unemployment rate among young workers, the key demographic, rose to its highest level in over two years, raising concerns about the employment risks posed by artificial intelligence.

It seems Chinese policymakers are taking a wait-and-see approach regarding the phenomenon of dual-speed growth, as years of efforts to push consumers back into stores have yielded only marginal gains.

The government scaled back fiscal spending in March, while the central bank even avoided hinting at any further easing in policy amidst ample liquidity in the market and weak demand for credit.