China's consumption activity momentum continues to weaken, and consumption may slow further ahead

Overview

This report examines the relationship between China's five-factor consumer activity Z-score and MSCI China, with the core conclusion that China's consumption momentum continued to weaken in May. The report notes that air passenger traffic, dining, and goods retail all slowed. Although household loans and passenger vehicle sales improved slightly, retail sales YoY growth turned to -0.6% in May, indicating that the consumption recovery remains fragile.

Core views

The report's core view is cautious: consumer activity indicators continue to decline, and consumption may slow further ahead. The main pressures come from fading trade-in policy effects, a persistently weak labor market, and limited spillover support from exports to domestic consumption. For MSCI China and China consumer-related assets, this implies that short-term fundamental momentum and market sentiment may face constraints.

Analysis framework

The report adopts a multi-factor consumer activity tracking framework, incorporating high-frequency or macro consumption-related indicators such as air passenger traffic, dining, goods retail, household loans, and passenger vehicle sales, and evaluates changes in consumer activity relative to historical levels through a Z-score approach, then compares them with MSCI China performance.

Methodology notes

• Macro Consumption TrackingFive-factor Consumer Activity Z-score

  Measures China's consumption momentum using multiple consumer activity indicators.

  The report mentions that air passenger traffic, dining, and goods retail weakened in May, while household loans and passenger vehicle sales improved slightly, and uses the Z-score composed of these factors to judge that overall consumer activity continued to decline.

• Equity Strategy ComparisonMSCI China Comparative Analysis

  Links changes in macro consumer activity with the performance of the China equity market.

  The report title explicitly compares China's five-factor consumer activity Z-score with MSCI China, to observe the implications of consumption momentum for China equity strategy views.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• MSCI China

  Serves as a benchmark for the China equity market and is compared with China's five-factor consumer activity Z-score.

  Strengths

  Can reflect the sensitivity of the China stock market to changes in macro consumption momentum.

  Weaknesses

  The report input does not provide complete chart values, so the elasticity between the Z-score and index performance cannot be quantified.

  Comparison

  Weakening consumer activity usually pressures sentiment in the China equity market, especially when consumption-related weightings are high.

  Risks

  If the labor market remains weak, policy support fades, or consumer data continues to decline, MSCI China may face dual pressure from fundamentals and sentiment.

• China consumer-related stocks

  Affected by consumer activity indicators such as retail sales, dining, goods retail, travel, and auto sales.

  Strengths

  Passenger vehicle sales and household loans improved slightly, indicating that localized demand still has some support.

  Weaknesses

  Air passenger traffic, dining, and goods retail weakened, and retail sales YoY turned negative, showing insufficient overall consumption recovery.

  Comparison

  Compared with localized improvements, the report places greater emphasis on the overall downward trend in consumption momentum.

  Risks

  Weaker trade-in policy effects, a weak labor market, and limited export spillover may continue to weigh on the performance of the consumer sector.

Key data

• Report Date2026-06-23The report cover page time is June 23, 2026 09:00 PM GMT.
• May Retail Sales YoY-0.6%The report says this is the first negative reading since 2022, due to reasons including fading trade-in effects and continued weakness in the labor market.
• Consumer Activity Z-scoreFurther declined in MayAir passenger traffic, dining, and goods retail all weakened.
• Household LoansSlight improvementThe report lists this as one of the few improving items in May.
• Passenger Vehicle SalesSlight improvementTogether with household loans, it provided limited support to overall consumption.
• Forward-looking ViewConsumption may slow furtherThe main reasons are weaker policy support, a softer labor market, and limited export spillover.

Impact & implications

In terms of investment implications, the report signals that short-term fundamental pressure remains on China consumer-related equity assets. If the consumer Z-score continues to decline, earnings expectations and risk appetite for MSCI China and the consumer sector may come under pressure; if household loans, auto sales, or policy support strengthen again, they could become signals of subsequent improvement.

Risks

• A persistently weak labor market may suppress household income expectations and willingness to spend.
• Fading effects of policy support such as trade-in programs may weaken demand for durable goods and goods retail.
• Export growth has limited spillover to domestic consumption and may struggle to meaningfully offset domestic demand pressure.
• The report's effective research content is relatively concentrated, and the input lacks complete chart values, so quantitative judgment requires reviewing the original charts.
• Morgan Stanley discloses that it may have business relationships with companies under research coverage, and investors should treat this report as one factor in decision-making rather than the sole basis.

What to watch

• Whether subsequent retail sales YoY remains negative or shows recovery.
• Whether the five-factor consumer activity Z-score stabilizes, especially for air passenger traffic, dining, and goods retail.
• Whether improvements in household loans and passenger vehicle sales can continue and spread to broader consumption areas.
• Changes in the labor market and household income expectations.
• The strength of policy support and the marginal effectiveness of trade-in policies.
• The market reaction of MSCI China and China's consumer sector to changes in consumer data.