The easy wins from last year's trade-in policies are exhausted
China's April economic data arrived as a quiet reckoning — not a crisis, but a turning point where the momentum borrowed from yesterday's policies has begun to exhaust itself. Retail sales, industrial output, and investment all decelerated to multi-year lows, revealing how much of 2024's growth was borrowed from future demand through trade-in incentives now fading. Policymakers in Beijing face the oldest dilemma in economic governance: how to rekindle growth without feeding the inflation that is, for the first time in years, beginning to stir.
- Retail sales grew just 0.2% in April — the weakest since 2022 — as the trade-in programs that had sustained consumer spending ran dry, leaving autos, appliances, and furniture in sharp contraction.
- Industrial production hit a 33-month low at 4.1% growth, with domestic-facing sectors like cement, glass, and steel signaling that the real estate and construction slump is far from over.
- Private investment swung into contraction at -5.2%, suggesting that geopolitical uncertainty — from trade tensions to the Iran conflict — is quietly freezing business decisions across the economy.
- A rare complication has emerged: producer prices and non-food inflation have both reached 45-month highs, making the case for aggressive stimulus politically and economically harder to argue.
- Property markets offered a sliver of hope, with top-tier cities like Shanghai and Beijing posting modest monthly price gains, but investment in the sector remains down nearly 14% year-to-date.
- Beijing must now decide whether to deploy new stimulus before the second quarter deteriorates further — a balancing act between reigniting demand and letting inflation run ahead of control.
China's economy stumbled in April, producing a cluster of disappointing figures that left analysts and policymakers alike reassessing the year's trajectory. Retail sales grew just 0.2 percent year-on-year — the slowest pace since 2022 — as the trade-in incentive programs that had powered consumer spending through 2024 and into early 2025 finally ran out of road. Auto sales collapsed 15.3 percent, household appliances fell 15.1 percent, and furniture dropped 10.4 percent. Gold and jewelry added a separate shock, plunging 21.3 percent as prices retreated from the highs triggered by the Iran war outbreak earlier in the year.
Industrial production decelerated to 4.1 percent year-on-year, a 33-month low, even as export-oriented sectors like electronics and aerospace held firm. The weakness was concentrated in domestic-facing industries — cement, glass, and steel — all of them mirrors of a property and construction sector still struggling to find its footing. Fixed asset investment turned negative for the first time in months, with private investment contracting 5.2 percent as geopolitical uncertainty dampened business confidence.
Property offered a cautious counterpoint. New home prices fell only marginally, and the number of cities seeing stabilization or gains in the primary market rose from 16 to 21. Tier 1 cities led the way, with Shanghai posting a 0.7 percent monthly gain. Analysts had been watching for exactly this pattern — recovery seeding itself from the top down — but with property investment still down nearly 14 percent year-to-date, any meaningful rebound remained distant.
The deeper tension the April data exposed was one of policy design. Growth was slowing faster than expected, yet inflation — both at the producer level and in non-food consumer prices — had reached 45-month highs. For most central banks, that combination would demand tightening. China's situation was different: its inflation was emerging from years of near-deflation, giving the People's Bank of China more room to act. But the dilemma was real nonetheless. Policymakers had shown little urgency for new stimulus in 2025, and the April numbers suggested that restraint may not hold for much longer.
China's economic engine sputtered in April, delivering a set of data points that caught forecasters off guard and left policymakers facing an uncomfortable choice. Retail sales expanded at just 0.2 percent year-on-year, a sharp deceleration from March's 1.7 percent and far below what analysts had expected. It was the slowest monthly pace since 2022, a threshold that matters because it signals something has shifted in how Chinese consumers are spending.
The weakness had a clear culprit: the trade-in policies that had turbocharged demand throughout 2024 and early 2025 were running out of steam. Auto sales collapsed 15.3 percent, as buyers who had been waiting for replacement vehicles either made their purchases already or decided to hold off. Household appliances fell 15.1 percent and furniture dropped 10.4 percent—both categories that had been among the biggest winners from government incentive programs. A separate shock came from gold and jewelry, which plummeted 21.3 percent as prices stabilized after the Iran war outbreak sent them tumbling from record highs at the start of the year. Consumer staples held up better, with alcohol and tobacco growing 11.7 percent and beverages at 3.6 percent, but these bright spots couldn't offset the broader contraction.
Industrial production told a similar story of deceleration. Output grew 4.1 percent year-on-year in April, down from 5.7 percent in March and marking a 33-month low. The surprise here was that this weakness arrived despite robust export data in recent months. Export-oriented sectors like auto manufacturing (9.2 percent growth), rail and aerospace (8.2 percent), and electronics (15.6 percent) remained solid. High-tech manufacturing continued its strong run at 12.8 percent. But domestic-facing industries were struggling. Cement fell 10.8 percent, glass dropped 7.9 percent, and steel barely grew at 1.7 percent—all signals of weakness in real estate and construction. Solar cell production collapsed 25.6 percent as the government cracked down on overcapacity and predatory pricing. Crude oil processing volume fell 5.8 percent, another echo of the Iran conflict.
The investment picture was bleaker still. Fixed asset investment turned negative for the first time in months, falling to minus 1.6 percent year-to-date through April, a sharp reversal from the 1.7 percent growth recorded in the first quarter. Public investment still grew at 2.5 percent, but private investment had swung into contraction at minus 5.2 percent. Infrastructure investment decelerated sharply to 4.3 percent year-to-date after running at 11.4 percent in the first two months. Manufacturing investment slowed to 1.2 percent, dragged down by pharmaceuticals, specialized equipment, and autos. Geopolitical uncertainty—from last year's trade tensions and this year's Iran conflict—appeared to be weighing on business decisions.
One sector showing tentative signs of stabilization was property. New home prices fell just 0.19 percent month-on-month in April, while used home prices dipped 0.23 percent. More encouraging was the city-level breakdown: 21 cities saw prices stabilize or rise in the primary market, up from 16 in March. Tier 1 cities showed particular strength in the secondary market, with Shanghai posting a 0.7 percent monthly gain, Beijing 0.4 percent, Shenzhen 0.3 percent, and Guangzhou 0.2 percent. This pattern—stabilization starting from the top-tier cities—aligned with what analysts had been watching for. But property investment remained deeply depressed at minus 13.7 percent year-to-date, and high inventories meant any recovery would take time to materialize.
The April data exposed a fundamental tension in China's economic policy. Growth was decelerating faster than expected, with the second quarter likely to be weaker than the first, even as the country remained on track to meet its annual targets thanks to a strong start to the year and resilient exports. Yet simultaneously, inflation pressures were building. Producer price inflation and non-food inflation had both hit 45-month highs, suggesting price pressures would intensify further. For most central banks globally, this combination would trigger rate increases. But China's inflation was emerging from years of near-deflation, giving the People's Bank of China more room to maneuver than its counterparts elsewhere.
Still, the dilemma was real. Policymakers had shown limited urgency for stimulus so far in 2025, but the April numbers suggested that calculus might need to change. If the deterioration continued, additional support for the domestic economy would likely become necessary. The question was whether they could provide that support without letting inflation run too far ahead—a balancing act that would define the rest of the year.
Citações Notáveis
The April data suggest we are closer to a bottom in the property market, though we've had a couple of false bottoms in the past as well.— ING analysis
This combination of downside growth risks and upside inflation risks highlights the dilemma for policymakers.— ING analysis
A Conversa do Hearth Outra perspectiva sobre a história
What's the actual story here—is China in trouble, or is this just a normal slowdown?
It's the timing that matters. The first quarter was strong, so growth targets are still within reach. But April fell off a cliff, which suggests the second quarter will be weaker. The real issue is that the easy wins from last year's trade-in policies are exhausted.
So people already bought their cars and appliances, and now there's nothing left to drive sales?
Exactly. Those policies front-loaded demand. You got a subsidy to trade in your old car or refrigerator, so millions of people did it at once. Now that pool of buyers is empty, and you're seeing the hangover.
But exports are still strong, right? Doesn't that offset the domestic weakness?
It does, for now. But exports can't carry the whole economy forever. The real problem is private investment has turned negative. Businesses aren't confident enough to spend, and that's a warning sign.
What's making them nervous?
Geopolitical uncertainty, mainly. The trade war with the US last year, the Iran conflict this year. When the future feels unstable, companies hold back. There's hope that recent diplomatic moves might improve things, but that's still just hope.
So the government needs to stimulate the economy. But you mentioned inflation is rising too. Can they do both?
That's the dilemma. Normally, rising inflation would force rate hikes. But China's inflation is coming from a near-deflationary environment, so they have more flexibility than most central banks. They could probably stimulate without triggering a crisis. The question is whether they will.
And the property market—is that finally turning around?
Maybe. Prices are stabilizing in the top-tier cities, which is what you'd want to see. But property investment is still down 13.7 percent, and inventories are high. Even if prices bottom out, it'll take time for that to translate into a recovery in building and investment.