China output consumption pick up in May

Growth in China’s industrial output and retail sales accelerated in May, with consumption increasing at its fastest pace since December, official data showed Friday, in signs of renewed strength in the world’s second-largest economy.

Industrial production rose 8.8 percent year-on-year last month, the National Bureau of Statistics (NBS) said in a statement, up from 8.7 percent in April and matching the median forecast in a poll of 15 economists by the Wall Street Journal.

Retail sales, a key gauge of consumer spending, increased 12.5 percent last month from a year ago, the NBS said in a separate statement, up from a gain of 11.9 percent in April and the highest since 13.6 percent at the end of last year.

The data provided further evidence that economic activity in China is picking up as the government stepped up what economists call a “mini-stimulus” to arrest a slowdown seen earlier this year.

Friday’s numbers “signal that China’s growth momentum may soon bottom out, despite some downside risks”, economists at ANZ Bank said in a research note, also citing an acceleration in export growth announced earlier this week.

China’s gross domestic product grew by 7.4 percent in the first three months of 2014, weaker than the 7.7 percent recorded in October-December and the worst pace since a similar 7.4 percent expansion in the third quarter of 2012.

Fixed-asset investment, a main measure of government spending on infrastructure projects, slowed marginally to 17.2 percent year-on-year in the January-May period from a 17.3 percent rise in the first four months of the year, extending a decelerating streak that began in September.

China’s leaders say they want consumer spending and other forms of private demand to propel the economy into a future of more sustainable, albeit slower, growth, and reduce an over-reliance on huge and often wasteful investment projects.

– Cautious steps by Beijing –

Beijing has introduced a number of measures to boost growth, including cuts in the amount of cash selected lenders must keep on hand in a bid to spur lending, financial support for small companies and targeted infrastructure outlays such as for railway lines and shantytown renovation.

But it has so far refrained from more aggressive steps such as interest rate cuts, citing worries about excessive credit.

“In our view, while the policy fine-tuning is not sufficient to change the trajectory of the growth profile, it will help lift the sentiment and stabilise the growth over the foreseeable future,” the ANZ economists added.

Zhang Zhiwei, a Hong Kong-based analyst with Nomura International, said that he expects the stimulus measures to help stabilise economic growth at 7.4 percent in the second quarter and 7.5 percent for the full year, matching the government’s 2014 target.

He added, however, that Nomura does not see the recovery as sustainable over the medium term.

“We continue to expect growth to slow to 6.8 percent in 2015,” he write in a note.

The main risk to growth, analysts say, stems from the country’s cooling property market, a sector key to driving economic expansion, local government revenue creation and maintaining the stability of China’s financial system given huge loans granted to developers and home buyers.

New home prices in major Chinese cities posted their first month-on-month decline in nearly two years in May, an independent survey showed, with analysts pointing to factors including stringent bank loan criteria, expectations of falling prices, and financial trouble among developers.

The NBS data also showed growth in property investment in the five months through May slumped to 14.7 percent, the lowest since 12.5 percent in August 2009 amid the global financial crisis, indicating that developers remained cautious.

“The broader picture is that the property sector is still putting downwards pressure on the economy,” Julian Evans-Pritchard, an analyst with research firm Capital Economics, said in a report.


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