Yuan Climbs to 14-Month Peak as Data Highlight Fragile Consumer Demand

Key Moments

Currency Strengthens Despite Soft Macro Data

China’s onshore yuan advanced to its highest level in more than a year on Monday, even as the latest economic figures highlighted the difficulty of reigniting domestic demand and rebalancing growth in the world’s second-largest economy.

The currency strengthened to 7.0510 per dollar (USD/CNY lower), marking its firmest level since October 8, 2024. Market participants pointed to consistent official guidance and expectations that authorities will continue to resist pronounced currency weakness as key supports for the move. The yuan’s gains came in spite of fresh November data that indicated further cooling in both industrial activity and consumer spending.

Growth Indicators Show Uneven Recovery

Industrial output in November expanded 4.8% year-on-year, a modest slowdown from October and below market expectations. The moderation in factory activity contrasted with an even sharper loss of momentum in household spending.

Retail sales, a closely watched indicator of consumer demand, rose only 1.3% in November, down from 2.9% in the prior month and well under forecasts. The data added to evidence that China’s recovery remains uneven and still leans heavily on the supply side rather than domestic consumption.

Weak Consumption and Investment Weigh on Outlook

Signs of fragile consumer activity continued to accumulate. Passenger car sales fell 8.5% in November, the sharpest decline in ten months. In addition, the extended Singles’ Day online shopping festival failed to deliver its typical lift to spending, underlining the subdued mood among households.

On the investment side, fixed-asset investment contracted 2.6% over the January–November period, a deeper-than-anticipated decline. The figures point to ongoing caution among businesses, even as production capacity remains ample, and they add to concerns about the durability of the current growth profile.

Policy Goals Confront Structural Headwinds

Policymakers remain focused on achieving an annual growth target of around 5% next year as China prepares to roll out a new five-year plan. However, the recent data have underscored the increasing difficulty of sustaining that pace. Both the World Bank and the IMF have highlighted more muted medium-term growth prospects, attributing this in part to weak domestic demand and structural challenges.

A prolonged downturn in the property sector sits at the center of these pressures. The sector’s weakness has eroded household wealth and weighed on consumer confidence. Home prices are expected to keep declining through 2026 before stabilizing, suggesting that the drag on sentiment could persist for an extended period.

At a key economic meeting last week, leaders committed to a “proactive” fiscal stance while acknowledging a “prominent” mismatch between strong supply and weak demand – an imbalance that remains unresolved.

Exports Support Growth and Currency, but Demand-Side Risks Build

For the time being, solid export performance has helped support overall growth and contributed to currency stability, even as trading partners continue to criticize China’s sizable trade surplus. The yuan’s recent firmness reflects confidence in the strength of policy support measures.

Nonetheless, the underlying macroeconomic data point to mounting pressure for more forceful demand-side interventions in the year ahead. With consumption and investment both under strain, policymakers face a complex task in trying to sustain growth while addressing structural imbalances and the ongoing property market adjustment.