China: Activity data remained weak in May

Research evidence excerpt

China: Activity data remained weak in May

territory in May

FAI growth fell sharply further into negative territory to -10.7% y-o-y in May from -8.0% in

April, marking two consecutive months of contraction and the deepest single-month

decline so far this year. The result significantly undershot both market expectations and

our own more pessimistic forecast (Consensus: -4.2%; Nomura: -4.9%). By sector, the

plunge was broad-based, with contractions recorded in manufacturing FAI, infrastructure

FAI and property FAI. The property sector slumped further and remained in deeply

negative territory, remaining the primary drag.

Manufacturing investment growth was essentially flat at -4.2% y-o-y in May (April: -4.3%),

which suggests the sector may have stabilised at a moderately contractionary level rather

than recovering. The April Politburo meeting pointedly placed renewed focus on the

ongoing "anti-involution" campaign, which has intensified significantly since July 2025 and

likely continued to weigh on manufacturing FAI in May. Notably, the persistent weakness

occurred despite highly robust export growth in the same month, reinforcing our view that

policy-driven capacity constraints may be overriding external demand signals.

Based on our calculations, FAI growth in the motor vehicle sector – now predominantly

EVs – improved slightly to -7.9% y-o-y in May from -10.4% in April, though it remained

firmly in contraction. FAI growth in the electrical machinery and equipment sector, which

includes both lithium-ion batteries and solar modules, fell back into negative territory,

dropping to -2.3% y-o-y in May from 7.6% in April and exhibiting the sectoral reach of the

anti-involution drive.

On the other hand, FAI growth in the railways, ships, aerospace and other transport