China Macro: May activity: deepening K-shaped divide

Research evidence excerpt

China Macro: May activity: deepening K-shaped divide

16 June 2026

China Macro

A K-shaped landscape was evident across the economy. AI-related demand

continued to show resilience, while non-AI sectors softened further.

• Industrial production improved by 0.4ppt to 4.5% YoY. Supported by

strong exports, growth picked up across metal products, electrical

machinery, and equipment manufacturing. Communication- and

electronic-equipment production was particularly strong, rising 17% YoY

(+1.4ppt), the fastest pace in eight years, benefiting from both export

demand and domestic AI-related demand. It is worth noting that the

slowdown in industrial production in April-May relative to 1Q was mainly

driven by petroleum processing and chemical manufacturing, both of

which were hit by higher oil prices. In fact, performance across most

other industrial sectors remained solid, as also reflected in the continued

growth in power generation, which rose 4.2% YoY in May versus 3.6% in

the first four months.

• Services output edged up by 0.1ppt to 4.4% YoY. ICT output remained

elevated at 11.3% YoY. Financial-sector output also improved to 7.0%

YoY from 6.7%, helped by the rebound in the equity market.

Transportation output rose 4.8% YoY, below the 1Q level, likely reflecting

the drag from higher gasoline prices on air travel and some auto-related

mobility. Accordingly, tourism and catering output may also have been

negatively affected. In addition, persistently weak property-related

activity continued to drag down overall services output.

• Retail sales weakened further by 0.8ppt to -0.6% YoY, turning negative

for the first time in 37 months. The unfavorable base effect from trade-in

subsidies continued to weigh on growth, with auto, home appliance, and