Rebound seen in consumption sector

China's consumption sector posted a mild rebound in the first quarter, but a slowdown in March pointed to a fragile recovery as the impetus from an extended Spring Festival holiday and trade-in program faded, analysts said.

Looking to the second quarter, they added that consumption growth will hinge more on the recovery of household income expectations, as diminished real estate wealth effects and lingering income uncertainties continue to keep savings rates elevated.

China's total retail sales of consumer goods, a key gauge of spending, rose 2.4 percent in the first quarter from a year earlier, accelerating 0.7 percentage points from the fourth quarter of 2025, according to the National Bureau of Statistics.

Yet a closer look at monthly data shows a sharper picture: March retail sales grew just 1.7 percent year-on-year, slowing by 1.1 percentage points from the 2.8 percent increase posted in January and February.

The record-long nine-day Spring Festival holiday, which fell in February, provided a lift to China's consumer spending in the first quarter, but that boost was inherently short-lived, said Tao Chuan, chief economist at Guolian Minsheng Securities.

The trade-in program, which subsidizes replacements of old cars, appliances and digital devices, was a key driver of durable goods sales in late 2024 and 2025. However, Tao said its impact is waning as consumer demand has been front-loaded.

Spending on automobiles fell 9.1 percent year-on-year in the first quarter, the sharpest decline among major consumer categories, according to the bureau.

"The marginal boost from the trade-in policy is fading," Tao said."At the same time, higher energy prices — driven by supply disruptions and geopolitical tensions — are eating into household budgets, leaving less room for discretionary spending."

That said, China's service retail sales grew 5.5 percent year-on-year in the first quarter, outpacing goods retail by 3.3 percentage points, as the government's dedicated efforts to cultivate new growth drivers in the services sector began to bear fruit.

"The focus of China's efforts to expand domestic demand is undergoing a shift — away from sheer scale and toward structural optimization, with service consumption emerging as a key engine of this transformation," said Alfred Yin, consumer sector leader at EY Greater China.

Unlike big-ticket goods such as automobiles and home appliances, which involve infrequent purchases, services are consumed regularly — from daily meals and ride-hailing to weekly fitness classes and monthly beauty treatments. This high frequency creates a steady stream of demand that is less volatile than durable goods cycles, Yin said.

Services also generate strong ripple effects through the economy. A single tourism trip, for example, supports not only airlines and hotels, but also restaurants, retail, entertainment venues and local transport. This multiplier effect amplifies the impact of every yuan spent, Yin added.

As the calendar moves into the second quarter, consumption growth will increasingly depend on whether households can repair their income expectations and sustain their willingness to spend, analysts said.

"The endogenous foundation for a consumption rebound still needs to be strengthened," said Luo Zhiheng, chief economist at Yuekai Securities. "Households are still in balance-sheet repair mode, and the precautionary savings mindset has not significantly changed."

Luo noted that the average propensity to consume — the ratio of per capita spending to disposable income — stood at 62.2 percent in the first quarter of 2026, down from 63.3 percent in the same period of 2024 and 63.1 percent in 2025.

Going forward, the government is expected to roll out additional measures to boost services consumption and support lower-income households, providing a floor for consumption growth, Luo added.

wangkeju@chinadaily.com.cn