An employee works on a production line at a car wheel rim factory in Qingzhou, in eastern China'a Shandong province, on June 17.STR/Getty Images
China’s May industrial output lagged expectations and a slowdown in the property sector showed no signs of easing despite policy support, adding pressure on Beijing to shore up growth.
Apart from retail sales that beat forecasts because of a holiday boost, the flurry of data on Monday was largely downbeat, underscoring a bumpy recovery for the world’s second-largest economy.
May industrial output grew 5.6 per cent from a year earlier, National Bureau of Statistics (NBS) data showed, slowing from the 6.7-per-cent pace in April and below expectations for a 6.0-per-cent increase in a Reuters poll of analysts.
However, retail sales, a gauge of consumption, in May rose 3.7 per cent year-on-year, accelerating from a 2.3-per-cent rise in April and marking the quickest growth since February. Analysts had expected a 3.0-per-cent expansion because of a five-day public holiday earlier in the month.
“May activity data and our high-frequency trackers for the first half of June suggest significant cross-sector divergences remain in the economy – strong exports and manufacturing activity, relatively stable consumption, and still-depressed property activity,” Goldman Sachs analysts said in a note.
Fixed-asset investment rose 4.0 per cent in the first five months of 2024 from the same period a year earlier, versus expectations for a 4.2-per-cent rise. It grew 4.2 per cent in the January to April period.
Manufacturing investment in the first five months showed robust growth of 9.6 per cent, underpinned by China’s emphasis for “quality growth” through technological breakthroughs and innovation this year.
But economists have warned that rising trade tensions with the West over China’s so-called overcapacity may impose more challenges to Chinese solar and electric-vehicle producers.
Private-sector investment grew 0.1 per cent in the January to May period, down from 0.3 per cent in the first four months, pointing to still-weak confidence among private businesses. By comparison, investment in the state sector jumped 7.1 per cent in the first five months.
Asian share markets were mostly softer after the mixed data, with the Chinese blue-chip CSI300 index slipping 0.2 per cent.
Exports helped bolster the economy, with steel and aluminum output posting sharp jumps in May.
“Exports drove industrial growth and manufacturing investment significantly, but real estate weakness still hit household consumption and investment,” said Zhaopeng Xing, senior China strategist at ANZ.
China’s property-market slump, high local government debt and deflationary pressure remain heavy drags on economic activity. The latest figures point to an uneven growth that reinforces calls for more fiscal and monetary-policy support.
With banks facing narrowing interest margins and a weakening currency remaining key constraints limiting Beijing’s scope to ease monetary policy, China’s central bank left a key policy rate unchanged as expected on Monday.
“We still see the likelihood of a cut to the Loan Prime Rate (LPR) this month, particularly on the five-year tenor, as this will help banks to retain households’ mortgage loans,” said Zhou Hao, chief economist at Guotai Junan International.
Meanwhile, Yu Xiangrong, chief China economist at Citi, expects a total 20-basis-point policy rate reduction in the second half of this year, but no LPR cut on Thursday.
China’s economy grew a faster-than-expected 5.3 per cent in the first quarter, but analysts say the government’s annual growth target of around 5 per cent is ambitious as the property sector remains in the doldrums.
Property investment fell 10.1 per cent year-on-year in the January to May period, deepening from a decline of 9.8 per cent between January and April.
New home prices slipped 0.7 per cent in May from April, marking the 11th straight month-on-month decline and steepest drop since October, 2014, according to Reuters calculations based on NBS data.
The central bank last month announced a relending program for affordable housing to accelerate sales of unsold housing stock.
NBS spokesperson Liu Aihua told a media briefing on Monday that the property market is undergoing adjustment and it will take some time for policy measures to kick in.
The property sector, which accounted for around a quarter of economic output before the downturn, has been hit by a regulatory crackdown as well as demographic and broad economic pressures. The government has launched a slew of measures to help homebuyers, such as easing mortgage rules.
But tepid demand at home has kept a lid on consumer prices as confidence remains low in the face of a protracted property-sector crisis. New bank lending rebounded far less than expected in May and some key money gauges hit record lows.
The job market over all was steady. The nationwide survey-based jobless rate hit 5.0 per cent in May, the same as that in April.
Beijing has vowed to create more jobs linked to major projects and promote domestic demand, and has pledged greater fiscal stimulus to shore up growth.