China retail growth masks weak consumer demand

Small-ticket goods are outperforming durable products.

China’s retail growth is increasingly masking weaker consumer demand, with prices rising as transaction volumes decline, according to S&P Global Ratings.

The ratings agency said in its report, “China Retail: High Prices Mask Weakness,” that overall retail growth remains in line with its projections, but transaction volumes are stagnating.

"Small-ticket items are outperforming durables as consumers pivot toward products offering immediate emotional satisfaction," said S&P Global Ratings Credit Analyst Sandy Lim.

The shift is partly driven by weaker government stimulus for durable goods. Lim said the impact of subsidies has diminished as part of the demand was brought forward in 2025.

"Consequently, consumers are less responsive to current, more limited subsidy programs,” she noted.

Telecommunications is also showing weaker underlying demand. Although the sector is leading retail growth, mainly through mobile phones, handset volumes are expected to decline.

Revenue is being supported by premium products, government subsidies, and higher component costs being passed on to consumers, Lim said.

A weak property market and high penetration of key product categories are further reducing demand, whilst household goods replacement cycles have slowed.

The weaker consumer environment is intensifying competition as companies compete for market share amidst stagnant revenue pools and selective consumer spending.

"Businesses are entering a period of intense competition, forced to fight for market share amid stagnating revenue pools and highly selective consumer preference," Lim said.