China's economy continues to struggle with weak domestic demand, raising concerns that consumer spending may contract for the first time this year. Recent indicators point to declining consumer confidence and subdued household borrowing, underscoring the challenges facing policymakers as they attempt to revive consumption-led growth.

A gauge of consumer confidence slipped to its weakest level since mid-2025, reflecting persistent concerns over employment prospects, income growth, and household finances. The deterioration in sentiment comes despite various policy measures aimed at supporting consumption and stabilizing the broader economy.

Bank lending data also highlights the weakness in household demand. Chinese households continued to reduce both short-term and long-term borrowings in May, resulting in a second consecutive month of contraction in lending to the household sector. Household loans fell by 141.2 billion yuan in May following a much steeper decline in April, indicating continued caution among consumers and homebuyers.

The slowdown in consumption adds to concerns about China's broader economic momentum. Retail sales growth weakened sharply in April, while industrial output also undershot expectations, suggesting that domestic demand remains fragile despite resilience in certain export-oriented sectors.

Analysts attribute the weakness to a combination of factors, including a soft labor market, lingering effects of the property downturn, and subdued consumer confidence. The prolonged weakness in household spending is particularly significant because Beijing has repeatedly emphasized boosting domestic consumption as a key pillar of sustainable economic growth.

With household demand remaining sluggish, policymakers may face increasing pressure to introduce additional measures to stimulate consumption and support economic activity during the remainder of 2026.