Kevin Yao, Alvy Chang, Ellen Chang
BEIJING (Reuters) – China’s industrial production fell short of expectations in May and a slowdown in the property sector showed no signs of easing despite policy support, increasing pressure on Beijing to strengthen growth.
Aside from a better-than-expected retail sales boosted by a strong holiday season, a mostly dismal set of data released on Monday highlighted the fragile recovery in the world’s second-largest economy.
Data from the National Bureau of Statistics showed industrial production grew 5.6 percent in May from a year earlier, slowing from 6.7 percent in April and below the 6.0 percent increase forecast in a Reuters survey of analysts.
But retail sales, a measure of consumption, grew 3.7% year-on-year in May, accelerating from a 2.3% increase in April and the fastest growth since February. Analysts had expected a 3.0% increase because of a five-day holiday earlier in the month.
“Economic activity data for May and high-frequency trackers for the first half of June suggest that significant divergences remain across sectors of the economy, with exports and manufacturing activity robust, consumption relatively stable and real estate activity remaining sluggish,” Goldman Sachs analysts said in a note.
Fixed asset investment grew 4.0% year-on-year in the first five months of 2024, beating the forecast 4.2% increase. In the January-April period, it increased 4.2%.
Manufacturing investment grew at a strong 9.6 percent rate in the first five months of this year, underpinned by China’s emphasis on “quality growth” through technological advances and innovation.
But economists have warned that growing trade tensions with the West over China’s so-called excess capacity could pose further challenges for Chinese solar power and electric vehicle makers.
Private sector investment grew 0.1% in January-May, down from 0.3% in the first four months of the year, suggesting private business confidence remains weak. In contrast, state sector investment grew 7.1% in the first five months of the year.
Asian stock markets were broadly weaker after mixed data, with China’s blue-chip CSI 300 index falling 0.2 percent.
Export-led recovery
Exports are supporting the economy, with steel and aluminum production surging in May.
“Exports have been a major driver of industrial growth and manufacturing investment, but weakness in the property market continues to hurt household consumption and investment,” said Zhao Pengxing, senior China strategist at Australia and New Zealand Banking Group.
China’s sluggish property market, high local government debt and deflationary pressures remain major drags on economic activity, with the latest data pointing to uneven growth and strengthening calls for further fiscal and monetary policy support.
The People’s Bank of China left its key policy rate unchanged as expected on Monday, as narrowing banks’ interest rate margins and a weak currency remain the main constraints limiting Beijing’s room for monetary policy easing.
“We still think there is a chance of a cut in the prime lending rate (LPR) this month, especially for the five-year rate, as this will help banks maintain mortgage lending to households,” said Zhou Hao, chief economist at Guotai Junan International.
However, Citi’s chief China economist Yu Xianrong expects policy rates to be cut by a total of 20 basis points later this year, but not a cut in the LPR on June 20.
Real estate data worsens
China’s economy grew at a better-than-expected 5.3 percent in the first quarter, but analysts say the government’s annual growth target of around 5 percent is too ambitious as the property sector continues to struggle.
Real estate investment fell 10.1% in the first five months of the year from a year earlier, worsening from the 9.8% decline in the first four months of the year.
New home prices fell 0.7 percent in May from April, the 11th consecutive month of month-on-month declines and the biggest drop since October 2014, according to Reuters calculations based on data from the National Office for Housing Statistics.
The central bank last month announced an affordable housing re-leasing programme to speed up sales of unsold housing stock.
National Bureau of Statistics spokeswoman Liu Aihua said at a press conference on Monday that the property market was undergoing adjustment and it would take some time for policy measures to take effect.
The real estate sector, which accounted for about a quarter of economic output before the recession, has been hit by tighter regulation, demographic trends and broader economic pressures, and the government has rolled out a series of measures to support home buyers, including easing mortgage rules.
But domestic demand has been sluggish and consumer prices remain weak amid a protracted real estate crisis. A recovery in new bank lending in May was much weaker than expected and some key currency gauges fell to record lows.
The job market is generally stable, with the national unemployment rate remaining at 5.0% in May, the same as in April.
The Chinese government has vowed to create more jobs linked to major projects and step up fiscal stimulus to boost domestic demand and support growth.
(Reporting by Alvy Chang, Ellen Chang and Kevin Yao; Editing by Jacqueline Wong)
