China's retail sector showed signs of recovery in the first two months of the year, with retail sales up 2.8% year-over-year in January and February, marking a 1.9 percentage point acceleration from December and ending a seven-month streak of deceleration, according to Barclays.
Online sales of physical goods also accelerated markedly, rising 10.3% year-over-year in the January-February period, a 9.5 percentage point improvement from December.
Barclays identifies two main support factors behind the retail rebound: the continuation of trade-in subsidies into 2026 and demand associated with the Chinese New Year holiday. The bank notes that several durable and discretionary categories resumed positive trajectories.
- Sales of home appliances, home electronics, and video and audio equipment returned to growth, up 3% year-over-year, a gain of 22 percentage points from December.
- Discretionary categories posted robust increases, with apparel rising 10.4%, communication equipment up 17.8%, gold, silver and jewelry products at 13%, and furniture climbing 8.8%, all year-over-year.
The housing market displayed signs of activity as well. Existing home transactions rebounded in January and February, with transaction area growing year-over-year. The strength was concentrated in tier-1 cities, where transaction area rose 41% year-over-year, led by Beijing and Shenzhen which increased 90% and 113% year-over-year, respectively. New home transaction area narrowed its decline to -3.4% year-over-year.
Industry activity measures also improved. Electricity consumption was up 6.1% year-over-year in January and February, a rise of 3.1 percentage points from December. The secondary sector was led by high-tech and advanced equipment manufacturing, which accelerated to 10.6% year-over-year, an increase of 4.9 percentage points from December.
The tertiary sector expanded 8.3% year-over-year, with internet and data services surging 46% year-over-year.
Not all indicators were positive. Domestic new energy vehicle (NEV) sales volumes declined 7% year-over-year in the January-February period, a deterioration of 14 percentage points from December. Total vehicle sales decelerated by 3 percentage points to -9% year-over-year.
Policy changes are a direct factor for the NEV market: for 2026 and 2027, China altered the support framework by switching from a full purchase-tax exemption to a 50% reduction, a change Barclays says will put pressure on NEV sales.