China’s Economic Recovery Slowed by Weak Demand, Investment Easing – As Trade Sources

China’s economy slowed in April as global trade pressures and local economic conditions affected major sectors such as consumer spending, real estate, and fixed investment. 

Even while Beijing continues to try to stimulate demand and stabilize prices, economic indicators suggest that the world’s No. 2 economy is under renewed pressure. 

According to Chinese National Bureau of Statistics data released on Friday, retail sales – one of the biggest metrics for domestic consumption—grew only 5.1% year over year. 

This was below analysts’ expectations of 6% growth, but it could also be another signal that there is a bigger problem: consumer wariness in a slow housing market where prices are falling. Housing wealth, a significant part of the financial security of Chinese households, is deteriorating, negatively affecting consumer confidence. 

The move lower in the consumer price index indicates what is driving consumer wariness. The consumer price index was down- 0.1% in April, suggesting deflation and the weakening price environment, which encourages spending. The weakness encourages households to defer purchases based on the expectation that prices will be lower. The weakening inflation also creates some concerns on the part of Beijing related to the levels of production that can impact the profitability of businesses or the level of employment. 

Fu Linghui, spokesperson for the National Bureau of Statistics, said that the economy is still on the road to recovery. However, “there are still a number of external shocks” and uncertainties that are affecting stability. He reflected that restoring stability around prices and encouraging spending will be critical for sustainable growth.

At the same time, industrial output increased by 6.1% year-over-year in April from 7.7% the month before. The slowdown hints that the manufacturing component of China’s economy is starting to be affected by persistent tariffs and other trade constraints. 

Although the pause in tariff increases offered an opportunity for a short-term upturn in exports, it bears watching whether that will last for seasonal orders in particular. However, the positive momentum of the manufacturing expansions will eventually start to exhaust itself if global consumers do not universally re-engage. 

Louise Loo, an economist with Oxford Economics, stated that China’s export-driven industrial emphasis will ultimately continue to push growth in factory output. Still, it has a significant cost: prolonged deflation. Unless the industry makes up for the apparent excess of manufacturing capacity with withdrawn or distanced demand, the downward price pressures and declines in profit margins will persist. 

And there lie my concerns with the other investment data. Growth of fixed asset investment (which includes infrastructure, factories, and machinery) in China was just 4% in the four months ending April 2025. Fixed asset investment in the property sector fell 10.3% year-over-year in the same timeframe. Property sales also dropped, and home prices continued to weaken, and with that, an additional drag on a sector that has always been the major driver of expansion in the Chinese economy, and serves as a negative feature as a country retreats from the developed nation growth path.

Lynn Song, ING’s Chief Economist for Greater China, added even amusement to the fact that the real estate industry still operates at the national level with trade war uncertainties choking home buyers’ decisions. “The property sector has not yet clearly found a national-level bottom. April 2025 data suggests that the aggravatingly high-level uncertainty in the international trade domain and domestic policy affecting the property market caused buyers to stall,” Song said.

As Beijing is juggling these rich and generative economic dynamics, it must now face the dual challenge of fostering domestic demand and managing external deflationary pressures. Now that they have anchored some momentum domestically in an increasingly volatile global landscape, policymakers are keen to focus on employment growth and price stability. 

While the short-term easing of trade restrictions is welcome, underlying structural issues remain untackled, such as persistent weak consumer spending, uneven property recovery, and an export-oriented manufacturing base subject to blows from international shocks. The next several months will clarify whether China is addressing its economic fundamentals or whether deeper adjustments will be needed to support medium to long-term sustainable growth for China’s economy.