China's domestic demand slump deepens as retail sales turn negative

President Xi Jinping has urged the Chinese government to boost domestic demand, but activity is faltering midway through 2026. Retail sales fell into negative territory last month, the first decline since 2022, reflecting persistent consumer apathy that outlasted the pandemic. Investment also weakened, with a gauge down 4.1% over the first five months of the year compared with the same period in 2025, marking the worst performance since the early COVID era. Analysts note that the lack of a clear alternative growth model is hampering the government's efforts to revive consumption and expand investment.

The slowdown highlights the challenges China faces in transitioning away from its previous growth drivers, raising concerns about the broader impact on the economy if demand does not recover.