China’s factories perk up in May, but weak consumption points to sluggish economic recovery

BEIJING (REUTERS) – China’s economy stabilised somewhat in May after a sharp slump the previous month as industrial production rose unexpectedly, but consumption was still weak and underlined the challenge for policymakers amid the persistent drag from strict Covid-19 curbs.

The data, however, points to a partial recovery in the world’s second-biggest economy after businesses and consumers were hit hard due to full or partial lockdowns in dozens of cities in March and April, including a protracted shutdown in commercial centre Shanghai.

Industrial output grew 0.7 per cent in May from a year earlier, after falling 2.9 per cent in April, data from the National Bureau of Statistics (NBS) showed on Wednesday (June 15). That compared with a 0.7 per cent drop expected by analysts in a Reuters poll.

As shoppers were confined to their homes in Shanghai and other cities, retail sales were still down 6.7 per cent, though better the forecast drop in the poll and an improvement from a 11.1% slump in April.

According to the China Passenger Car Association, the country sold 1.37 million passenger cars last month, down 17.3 per cent from a year earlier, narrowing the decline of 35.7 per cent in April.

Fixed asset investment, a key indicator tracked policymakers looking to prop up the economy, rose 6.2 per cent in the first five months, compared with an expected 6.0 per cent rise and a 6.8 per cent gain in the first four months.

The government has been accelerating infrastructure spending to boost investment. China’s Cabinet has also announced a package of 33 measures covering fiscal, financial, investment and industrial policies to revive its pandemic-ravaged economy.

The nationwide survey-based jobless rate fell to 5.9 per cent in May from 6.1 per cent in April, above the government’s 2022 target of below 5.5 per cent. However, the surveyed jobless rate in 31 major cities jumped to 6.9 per cent, the highest on record.

Some economists expect employment to worsen before it gets better, with a record number of graduates entering the workforce in summer.

China has set an annual economic growth target of around 5.5 per cent this year but many economists believe that is increasingly out of reach.

Chinese banks extended 1.89 trillion yuan (S$391 billion) in new loans in May, nearly tripling April’s tally and beating expectations. But 38 per cent of the new monthly loans were in the form of short-term bill financing, suggesting real credit demand still remains weak.

The central bank on Wednesday kept medium-term policy rate unchanged for a fifth straight month, matching market expectations.

Fresh lockdowns fears loom

While the world’s biggest manufacturer reported better-than-expected export growth in May, driven partly by the delivery of postponed export orders in the past, the subdued external demand due to the Ukraine war and robust production recovery of South-east Asian nations threaten the country’s trade outlook.

With only half of the month being left in the second quarter, China may find it challenging to achieve positive economic growth in the second quarter as requested by Premier Li Keqiang in May, as fears of fresh lockdowns loom large under China’s zero-Covid policy.

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