Discussions in Geneva are seen as beneficial for trade relations between China and the US. China experienced a boost in retail sales during May, thanks to online sales promotions and trade programmes.

The international environment remains uncertain, posing challenges to China’s economic recovery. The policy toolkit is prepared to adapt macro policies as circumstances evolve.

Challenges in the Labour Market

Despite the overall level of prices being low, this impacts enterprises, employment, and incomes. Some sectors face worker recruitment difficulties and there is pressure on employment for certain groups.

The complex external environment influences China’s labour market. Factors like uncertain trade policies have made it challenging for China to maintain stable economic growth since the second quarter.

In May 2025, China’s industrial output rose by 5.8% year-on-year, slightly below the expected 5.9% and lower than the previous 6.1%. Retail sales growth in May was the fastest since December 2023.

That initial summary paints a mixed, yet telling picture of China’s current economic condition. One the one hand, fresh data — particularly stronger retail sales possibly sparked by widespread online discount campaigns — shows there’s still consumer appetite within the economy. However, on closer inspection, the uptick in retail figures is not evenly mirrored in other core areas.

Industrial production increased by 5.8% compared to the same period last year, which is modestly below what was forecasted and indicates a slight loss of rhythm. While this divergence may appear minor, it hints at an economy showing varying speeds across sectors, rather than moving forward in unison. When manufacturing and services begin to stray from one another in pace, volatility in capital flows tends not to be far behind.

External and Internal Pressures

Consumer demand appears to be holding up, but low prices and muted inflationary pressure point to something a bit less healthy: producers under strain. If businesses are slashing prices simply to move stock or meet lower demand, this eventually drags on wages, hiring, and long-term profitability. Recruiting problems in key sectors might sound anecdotal, but they reflect a broader loss of momentum in job creation.

One cannot ignore the thread woven through this – external uncertainty – much of it driven by unclear global trade terms and geopolitical friction. Changes in demand from foreign buyers and shifts in global sourcing strategies have complicated growth planning. That mix of durable and temporary setbacks has required continual action by policymakers.

Authorities have already signalled readiness to adapt fiscal support and monetary controls. That kind of proactiveness is natural in times of dislocated growth. But the availability of those tools doesn’t mean they will work as intended, especially when confidence is brittle and financial markets are tuned to headlines rather than fundamentals.

Looking ahead, we might consider preparing for further oscillations in metrics tied to manufacturing output, shipping, and domestic demand. Any strategies that rely heavily on industrial strength to lift short-term economic hopes should account for fresh pockets of disruption – particularly in sectors vulnerable to commodity costs or tight profit margins.

If we follow where monetary guidance and public spending shifts, we may spot where support is expected to land next. Often, there’s a lag between policy adjustment and macro effects – this delay creates fragile windows in which volatility often spikes. Thin liquidity – common around summer in Asian markets – only makes this worse.

Therefore, when momentum feels broad but numbers tell a more uneven story, it might be more prudent to reduce short-dated exposures. Positioning for steady but selective demand – especially where consumer dependency is imported, not homegrown – could offer more practical directional cues. Opportunities won’t disappear altogether, but they’ll likely come obscured by pacing differences in data and policy reaction.

Ultimately, retail figures may grab attention, but employment issues and wobbles in capital formation will do more to dislodge medium-horizon stability. Market participants would be well-served by watching labour indicators more closely than headline indices. As Li’s team continues to expand stimulus channels, it’s not just policy size, but also velocity of deployment that will determine reaction.

Short-term optimism shouldn’t blind us to where deceleration has already appeared. Macro indicators behave like streams under ice: often quiet on the surface, but movements underneath tell a better story of direction.

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