China’s factory output disappoints, property sector stuck in turmoil By Reuters

By Kevin Yao, Albee Zhang and Ellen Zhang

BEIJING (Reuters) – China’s industrial output in May was on hold and a slowdown in the property sector showed no signs of easing despite political support, adding to pressure on Beijing to support growth.

Aside from retail sales that beat forecasts due to a holiday boost, the data crowd on Monday was largely weak, highlighting a bumpy recovery for the world’s second-largest economy.

May industrial production rose 5.6% from a year earlier, National Bureau of Statistics (NBS) data showed, slowing from a 6.7% pace in April and below expectations for a 6.0% rise in a Reuters poll of analysts.

However, retail sales, a gauge of consumption, rose 3.7% year-on-year in May, accelerating from a 2.3% increase in April and marking the fastest rise since February. Analysts had expected a 3.0% expansion due to a five-day public holiday at the start of the month.

“Activity data and our high-frequency trackers for the first half of June suggest that important cross-sectoral divergences remain in the economy – strong exports and manufacturing activity, relatively stable consumption and still depressed property activity,” analysts said. of Goldman Sachs in a note.

Fixed asset investment rose 4.0% in the first five months of 2024 from the same period a year earlier, versus expectations for a 4.2% rise. It increased by 4.2% in the January-April period.

Investment in manufacturing in the first five months showed a robust 9.6% growth, supported by China’s emphasis on “quality growth” through technological advances and innovation this year.

But economists have warned that rising trade tensions with the West over China’s so-called overcapacity could impose more challenges on Chinese solar and electric vehicle makers.

Private sector investment rose 0.1% in the January-May period, up from 0.3% in the first four months, pointing to still-weak confidence among private businesses. By comparison, investments in the state sector increased by 7.1% in the first five months.

Asian stock markets were mostly softer after mixed data with China’s blue-chip CSI300 index slipping 0.2%.

EXPORT DIRECTED RECALL

Exports helped boost the economy, with steel and aluminum production posting sharp increases in May.

“Exports significantly boosted industrial growth and manufacturing investment, but weakness in real estate is still weighing on household consumption and investment,” said ZhaoPeng Xing, senior China strategist at ANZ.

China’s slumping property market, high local government debt and deflationary pressure remain heavy drags on economic activity. The latest figures point to uneven growth that reinforces calls for more fiscal and monetary policy support.

With banks grappling with narrowing interest margins and a weakened currency remaining the main constraints limiting Beijing’s aim to ease monetary policy, China’s central bank left a key policy rate unchanged on Monday, as expected.

“We still see the possibility of a cut in the first lending rate (LPR) this month, especially in the 5-year term, as this will help banks keep household mortgage loans,” said Zhou Hao, chief economist at Guotai Junan. International.

But Citi’s chief China economist Yu Xiangrong expects a total policy rate cut of 20 basis points in the second half of this year, but no LPR cut on June 20.

PROPRIETARY INFORMATION APPEARS

China’s economy grew by a faster-than-expected 5.3% in the first quarter, but analysts say the government’s annual growth target of around 5% is ambitious as the property sector remains under pressure.

Investment in property fell by 10.1% year-on-year in the January-May period, deepening from a 9.8% decline in the January-April period.

New home prices fell 0.7% in May from April, marking the 11th consecutive month-on-month decline and the biggest drop since October 2014, according to Reuters calculations based on NBS data.

The central bank last month announced an affordable housing lending program to accelerate sales of unsold housing stock.

NBS spokesman Liu Aihua said at a press conference on Monday that the property market is undergoing an adjustment and it will take some time for policy measures to kick in.

The property sector, which accounted for about a quarter of economic output before the downturn, has been hit by a regulatory blow as well as demographic and broader economic pressures. The government has launched a number of measures to help home buyers, such as easing mortgage rules.

But tepid domestic demand has kept a lid on consumer prices as confidence remains low in the face of a prolonged property sector crisis. New bank lending rebounded much less than expected in May and several key money gauges hit record highs.

The labor market was generally stable. The unemployment rate based on the nationwide survey came in at 5.0% in May, the same as in April.

Beijing has pledged to create more jobs linked to major projects, boost domestic demand and promise greater fiscal stimulus to support growth.