Nomura Lowers China Retail Sales Forecast: The Drag from Substituted New-Product Subsidies Becomes the Main Headwind
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Nomura Lowers China Retail Sales Forecast: The Drag from Substituted New-Product Subsidies Becomes the Main Headwind
The report believes that the slowdown in China’s retail sales since 2026 is mainly driven by a payback effect from earlier old-for-new subsidies on goods, rather than weakening dining consumption. Nomura cut its full-year China retail sales growth forecast from 3.2% to 2.2%.
- Nominal retail sales growth slowed to 0.2% and -0.6% in April and May 2026, well below 2.4% in Q1 2026 and 3.7% in 2025.
- Driven by subsidized durable-goods pressure, growth weakened broadly across categories including automobiles, white goods, furniture, communication equipment, office supplies, and sports and recreation goods.
- Nomura estimates that subsidized goods sales growth declined from 5.1% in 2025 to -6.4% in January–May 2026, which can explain the full impact of weaker merchandise sales.
- The first published broad retail social retail measure including both goods and services shows non-restaurant service consumption still growing at around 6.0% y-o-y, indicating that the drag is mainly concentrated on the goods side.
- Household balance sheet repair is seen as coming more from spending cuts, debt repayment, and precautionary savings than from strong income growth, and therefore may continue to suppress consumption.
Report interpretation
Overview
This report re-examines the reasons for the sharp slowdown in China’s retail sales in 2026. Nomura argues that the slowdown does not mean all consumption deteriorated simultaneously; rather, it is mainly due to a payback effect from durable-goods demand pulled forward by the old-for-new subsidy over the past two years. By contrast, a broader retail measure including non-restaurant services shows service consumption growth to be relatively stable.
Core views
The core views are: first, merchandise retail, especially subsidized durable goods, is the main driver of the retail sales slowdown; second, service consumption is less amenable to subsidy policy support due to non-standardization and price volatility; third, household balance sheet improvement does not necessarily lead to a consumption rebound because current repair is more from expense compression, debt repayment, and higher precautionary savings; fourth, non-performing loan disposal in real estate and reform of the basic pension system are seen as more effective policy routes to support consumption and reduce inequality.
Analysis framework
The report disaggregates official retail sales into merchandise, food services, and non-food services, and uses above-scale retail enterprise category data to estimate how much subsidized durable-goods demand contributed to weaker merchandise sales. It also combines CF40 research on household balance sheets to analyze how the K-shaped wealth effect from real estate, equity markets, and AI-driven sentiment influences consumption propensity across income groups.
Methodology notes
Decompose broad retail sales into merchandise, food services, and non-food services.
The report uses the first social retail data released by the National Bureau of Statistics that include goods and services, deriving shares of 62% for merchandise and 38% for services, with food around 8% and non-food services around 30%.
Evaluate the future drag on growth from durable-goods demand that was front-loaded by subsidy policy.
The report aggregates subsidized-goods categories among above-scale retail firms, estimates that subsidized durable-goods sales shifted from positive growth in 2025 to negative growth in Jan-May 2026, and compares this contribution against the overall slowdown in merchandise sales.
Asset price improvements mostly benefit high-net-worth groups, while most households still face pressure from shrinking real estate assets.
The report argues that stabilized first-tier city housing, stock market gains, and AI-driven sentiment improve the balance sheets of higher-wealth households, but these groups have lower marginal propensity to consume, so the lift to total consumption is limited.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- China Consumption and RetailDirect research focus
- Strengths
- Service consumption, especially non-restaurant services, continues to show relatively stable growth.
- Weaknesses
- Merchandise retail and durable-goods consumption are visibly hurt by the old-for-new paydown effect.
- Comparison
- Goods sales are weaker than service consumption, and subsidized goods are weaker than unsubsidized goods.
- Risks
- Policy stimulus marginal effect is fading, households are cutting spending, and the real estate wealth effect remains negative.
- Durable Goods ConsumptionMain source of drag
- Strengths
- Subsidies previously drove demand strongly in categories such as automobiles, home appliances, and furniture.
- Weaknesses
- After demand was pulled forward, growth in categories like automobiles, home appliances, and furniture weakened or turned negative in 2026.
- Comparison
- Subsidized goods performed significantly weaker than unsubsidized goods.
- Risks
- Even if subsidy volume is further increased, demand may still retreat after subsidy-induced exhaustion.
- Real Estate and Equity Market Wealth EffectsIndirect variable affecting household consumption propensity
- Strengths
- Stabilizing first-tier city housing prices and rising stock markets improve the balance sheets of some high-net-worth households.
- Weaknesses
- Most households still face pressure on real estate assets, and stock market participation remains limited.
- Comparison
- Higher-wealth groups benefit more, but their marginal propensity to consume is lower; consumption capacity improvements for ordinary households are limited.
- Risks
- The K-shaped wealth effect widens inequality and weakens transmission from higher asset prices to overall consumption.
Key data
- 2026 April Retail Sales Growth0.2% y-o-yClearly weaker than 2.4% in Q1 2026.
- 2026 May Retail Sales Growth-0.6% y-o-yIndicates further weakening of short-term retail momentum.
- 2026 Full-Year Retail Sales Forecast2.2%Nomura lowered the full-year forecast from 3.2% to 2.2%.
- 2026 Q2-Q4 Retail Sales Forecast0.2%, 2.4%, 3.5%Cut respectively from previous 2.8%, 3.5%, and 3.7%.
- Subsidized Goods Sales Growth Change5.1% in 2025 down to -6.4% in Jan-May 2026The report estimates this change contributed -5.0 percentage points to the slowdown in above-threshold merchandise retail growth.
- Goods and Services Share in Broad RetailGoods 62%, Services 38%Derived from the National Bureau of Statistics’ first broad retail measure including goods and services.
- Non-Restaurant Service Consumption Growth6.0% y-o-y in Jan-May 2026Essentially stable versus 6.1% in 2025.
Impact & implications
For investment and macro assessment, the implication is that China’s consumption recovery still faces constraints from goods-side paydown, a relatively weak real estate wealth effect, and rising household precautionary savings. In the near term, relying on durable-goods subsidies alone to lift demand has diminishing marginal impact; recovery is more likely to depend on household income expectations, social protection improvements, and resolution of real-estate risks.
Risks
- Demand exhaustion in durable goods caused by old-for-new subsidies may continue to suppress merchandise retail.
- Housing price divergence and falling prices in lower-tier cities may continue to weaken household balance sheets for most families.
- Household balance sheet repair through spending cuts, debt repayment, and precautionary savings may further dampen consumption growth.
- Service consumption is non-standardized and price-volatile, so policy subsidies may have limited stimulative effect.
- AI and equity market dynamics mainly benefit high-net-worth households and may not broadly translate into mass consumption demand.
What to watch
- Whether monthly retail sales growth in later 2026 months recovers from the low levels seen in April and May.
- Whether subsidy-supported durable goods categories such as automobiles, home appliances, furniture, and communication equipment continue in negative growth.
- Whether non-restaurant service consumption can maintain stable growth around 6%.
- Whether household saving rates, debt repayment behavior, and consumption propensity show improvement.
- Progress on policy measures such as real-estate bad-loan resolution, basic pension reform, and other policies that improve household income expectations.