China’s Retail Sales Weaken Unexpectedly in November, Prompting Urgent Policy Stimulus

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China’s retail sales in November showed an unexpected slowdown, with growth falling significantly short of market expectations, highlighting the pressing need for the Chinese government to strengthen measures aimed at boosting consumption.

China’s retail sales grew by 3.0% year-on-year in November, a decline of 1.6 percentage points from the previous month, according to data released by the National Bureau of Statistics (NBS) on December 16, falling well below market expectations of 5.0%.

The slower growth primarily reflects declines in the sales of non-essential goods, including apparel, jewelry, beverages, and tobacco. Among these, cosmetics sales saw a sharp contraction, with annual growth plummeting to -26.4% from 40.1% in the prior period.

In contrast, automobiles (6.6%) and household appliances (22.2%), supported by the “trade-in” policy, continued to grow. Excluding automobile sales, retail sales of other consumer goods grew by only 2.5%, down 2.4 percentage points from the prior month, indicating that consumer spending and confidence have not broadly recovered despite stimulus measures.

In terms of industrial production, China’s industrial output grew by 5.4% year-on-year in November, slightly exceeding the previous month and market expectations of 5.3%, reflecting continued support for high-tech manufacturing. However, the growth in industrial production outpaced retail sales, highlighting persistent domestic oversupply issues.

In recent years, China has typically relied on exports to alleviate oversupply and drive economic growth. However, with Donald Trump set to assume the U.S. presidency, the export-driven growth model—accounting for 20–30% of GDP growth—may face challenges, necessitating a faster pivot toward domestic consumption as the primary growth driver.

Last week, the Central Economic Work Conference revealed significant adjustments to China’s economic priorities for the coming year. For the first time, consumer demand was elevated to the top priority among the nine key tasks (previously ranked second for the past two years).

In monetary policy, the government reintroduced terms like “moderate easing” the first such language since 2014  and pledged to “adjust reserve requirement ratios and interest rates at appropriate times”. Fiscal policy is also set to become more proactive, with explicit mentions of “raising the deficit ratio” and “moderately increasing central budgetary investment.”

While these announcements reflect the government’s determination to improve economic growth and domestic demand in 2024, the communiqué lacked specifics on the scale and implementation of these measures, leading to a muted market reaction.