Fading Policy Support May Keep China's Retail Sales Growth Subdued in H2 2026
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Fading Policy Support May Keep China's Retail Sales Growth Subdued in H2 2026
Goldman Sachs expects China's nominal retail sales growth to edge up from 1.3% YoY in H1 to 1.7% in H2, resulting in only 1.5% growth for the full year, with weaker trade-in support, higher NEV purchase taxes, and soft household demand as the main drags.
- Nominal retail sales growth has declined from 5.0% YoY in H1 2025 to 2.5% in H2 2025 and 1.3% in H1 2026; rising inflation suggests real consumption momentum may be even weaker.
- Total trade-in subsidies in 2026 were reduced from RMB300 billion to RMB250 billion, while subsidy standards and eligibility requirements for automobiles and home appliances were tightened.
- Goldman Sachs estimates that tighter auto trade-in policies and weaker program effectiveness reduced H1 retail growth by around 50bp, NEV purchase-tax adjustments by a further 30bp, and home-appliance policy changes by around 40bp.
- Base effects are expected to add around 70bp to YoY growth in the third quarter, but will turn negative again in the fourth quarter; lower oil prices are expected to provide limited support to overall retail sales.
- Over the medium term, consumption improvement depends more on sustained recovery in employment and income, household wealth, and consumer confidence than on temporary goods subsidies.
Report interpretation
Overview
The report analyzes policy, weather, and oil-price drivers behind the slowdown in China's retail sales growth. China's economy remains in an uneven recovery: external demand and industrial activity are relatively resilient, but the continuing property downturn is weighing on household balance sheets and confidence, leaving domestic demand—particularly goods consumption—weak.
Core views
The trade-in program has shifted from a consumption tailwind to a drag and is a key reason for weaker retail sales. Reduced subsidy funding, stricter implementation reviews, and front-loaded demand for durable goods, together with the scheduled phaseout of NEV purchase-tax incentives, are suppressing automobile and home-appliance sales. Weather affects individual categories but has limited explanatory power for aggregate retail; the price effect from higher oil prices has been offset by lower fuel purchase volumes, and future oil-price declines are also unlikely to materially lift retail sales.
Analysis framework
The report decomposes nominal YoY retail sales growth into base effects and underlying sequential momentum, while assessing real sales alongside inflation effects. Policy impacts are estimated through sales performance relative to pre-program trends and differences in the effects of policy changes on high- and low-priced vehicles. The weather analysis uses weighted heating degree days, cooling degree days, and rainfall deviations to run regressions on total retail sales and subcategories.
Methodology notes
Decomposes annual YoY growth into changes in the comparison base and current-period sequential growth.
This framework is used to assess whether more favorable base effects in the third quarter can improve YoY performance and whether growth pressure will re-emerge after base effects turn negative in the fourth quarter.
Estimates the effects of subsidy and tax changes using deviations of sales from pre-policy trends and by comparing policy effects across vehicle price bands.
Auto trade-in subsidies shifted from fixed payments to price-based calculations while retaining unchanged caps, resulting in larger effective subsidy cuts for lower-priced vehicles; NEV purchase-tax adjustments have a greater absolute effect on higher-priced vehicles.
Uses deviations in heating degree days, cooling degree days, and rainfall from seasonal norms to explain monthly sequential changes in retail sales.
The model controls for three lags of the dependent variable and excludes the pandemic period; temperature anomalies explain some category-level movements but have limited statistical explanatory power for aggregate retail sales.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- China Automobile ConsumptionTighter trade-in subsidies and the phaseout of NEV purchase-tax incentives directly affect vehicle purchase costs and sales volumes.
- Strengths
- Some fiscal spending and support for other consumption categories, such as digital products, may provide a limited buffer.
- Weaknesses
- Automobile sales fell 12.6% YoY in H1 2026, with lower-priced vehicles particularly affected by changes in subsidy rules.
- Comparison
- Compared with higher-priced vehicles, lower-priced vehicles face subsidy cuts that represent a larger proportion of vehicle prices; higher-priced vehicles, meanwhile, bear a larger absolute increase in purchase tax.
- Risks
- Weak household income expectations, front-loaded durable-goods demand, and further policy tightening could prolong sales pressure.
- China Home-Appliance ConsumptionHigher subsidy eligibility thresholds, lower subsidy ratios, and reduced per-item subsidy caps weaken trade-in incentives.
- Strengths
- Upgraded energy-efficiency and water-efficiency standards may support the product mix of qualifying products.
- Weaknesses
- Home-appliance sales fell 7.4% YoY in H1 2026, and policy adjustments are estimated to have reduced overall retail sales by around 40bp.
- Comparison
- Compared with digital products, which continue to receive relatively favorable support, policy support for home appliances has narrowed more significantly.
- Risks
- Quota constraints, insufficient funding, and stricter eligibility reviews could further suppress end demand.
- China Digital Product ConsumptionMobile phones, tablets, and smartwatches remain categories receiving relatively favorable trade-in support.
- Strengths
- Policy support is more resilient than for automobiles and home appliances.
- Weaknesses
- Overall consumer confidence and income expectations will continue to limit demand expansion.
- Comparison
- Compared with automobiles and home appliances, digital products are less affected by tighter subsidies.
- Risks
- A shrinking subsidy budget or weaker consumer demand could erode this relative advantage.
- Petroleum and Petroleum Products RetailOil-price changes affect nominal retail sales through fuel retail prices, but volume adjustments offset the price effect.
- Strengths
- Higher prices can mechanically lift nominal sales.
- Weaknesses
- When fuel prices rise, consumers reduce purchase volumes, offsetting the price contribution.
- Comparison
- Relative to conventional fuel consumption, increased substitution from electric vehicles, public transportation, and non-fossil energy weakens the net impact of oil prices on retail sales.
- Risks
- Lower oil prices will reduce the price contribution, while any recovery in volumes is expected to be limited.
Key data
- H1 2026 Nominal Retail Sales Growth1.3% YoYBelow 5.0% in H1 2025 and 2.5% in H2 2025.
- H2 2026 Retail Sales Forecast1.7% YoYHigher than H1 mainly due to improved third-quarter base effects, while underlying demand remains weak.
- Full-Year 2026 Retail Sales Forecast1.5% YoYBelow 3.7% YoY in 2025.
- Trade-in Subsidy ScaleRMB250 billionDown from RMB300 billion in 2025.
- Automobile and Home-Appliance Sales Performance-12.6% and -7.4% YoYThey reduced overall retail sales growth by 1.2pp and 0.2pp, respectively, in H1 2026.
- Third-Quarter Base Effect+70bpExpected to support nominal YoY retail sales growth before turning negative in the fourth quarter.
- 2030 Total Retail Sales of Consumer Goods TargetApproximately RMB60 trillionCompared with RMB50.1 trillion in 2025, this implies nominal annualized growth of around 3.7% during the 15th Five-Year Plan period.
Impact & implications
In the near term, subsidy-dependent durable goods consumption, including automobiles and home appliances, faces greater pressure, while digital products retain relatively favorable support. YoY retail data may improve marginally in the third quarter due to better base effects, but this would not indicate a significant improvement in underlying household consumption. Unless income expectations, housing prices, and consumer confidence recover, fiscal support for non-household entities will struggle to fully offset insufficient household-sector demand.
Risks
- If the trade-in program is tightened further, funding is depleted more quickly, or review requirements are strengthened, durable-goods consumption could be weaker than forecast.
- Changes to NEV purchase taxes, continued declines in housing prices, and deteriorating household income expectations could further reduce willingness to consume.
- A stronger El Niño in autumn and winter could cause localized weather disruptions, but its impact on aggregate retail sales is highly uncertain.
- If fiscal spending falls short of expectations, support for retail sales by non-household entities may be insufficient.
- Improved third-quarter base effects could cause a temporary rebound in YoY data, masking persistently weak underlying consumption momentum.
What to watch
- The pace of trade-in funding disbursement, local subsidy suspensions, and changes to eligibility rules for automobiles and home appliances.
- Sales, pricing, and inventory performance across vehicle price bands following NEV purchase-tax adjustments.
- Divergence in monthly growth across automobiles, home appliances, digital products, food and beverage, and online retail.
- The extent to which third-quarter base effects materialize and growth performance after fourth-quarter YoY base effects turn negative.
- Recovery in household employment, income expectations, consumer confidence, and housing prices.
- Whether oil-price changes are accompanied by a recovery in fuel volumes, as well as the effects of weather anomalies on offline foot traffic and logistics.