A Chinese national flag flutters on the Pearl River in Guangzhou, Guangdong province, China.  Picture: REUTERS
A Chinese national flag flutters on the Pearl River in Guangzhou, Guangdong province, China. Picture: REUTERS

Beijing — China’s factory output and retail sales grew at a steady pace in May but investment slowed, reinforcing views that the world’s second-largest economy will soon start to lose some momentum as lending costs rise and the property market cools.

Job creation remained solid over the first five months of the year, with 5.99-million new urban jobs, a spokesperson for the nation’s statistics bureau said on Wednesday.

China’s survey-based jobless rate both nationwide and in 31 major cities remained below 5% in May, National Bureau of Statistics spokesperson Liu Aihua said.

Global concerns about China have resurfaced since Moody’s Investors Service downgraded its credit ratings in May, saying it expected the country’s financial strength to erode in coming years as growth slowed and debt continued to rise.

But most analysts predict only a gradual loss of momentum in coming months, especially as the government is keen to maintain economic and financial market stability ahead of a major political leadership reshuffle in autumn.

May data released on Wednesday appeared to reinforce that consensus view, with still solid factory output and retail sales, and only a slight slowdown in fixed asset investment.

However, property investment and construction showed a much sharper deceleration after a slew of government cooling measures in recent months.

Factory output rose 6.5% in May from a year earlier, statistics bureau data showed on Wednesday.

Analysts polled by Reuters had predicted factory output would grow 6.3% in May, easing slightly from 6.5% in April.

But, for now, manufacturing activity still appeared to be well supported by a year-long construction boom fuelled by a government infrastructure spree and a heated property market.

Sales of excavating machines doubled in May from a year earlier, according to an industry website.

Fixed-asset investment growth slowed to 8.6% in the first five months of the year. It had been expected to slip to 8.8% from 8.9% in January-April.

Growth of private investment slowed slightly to 6.8% in January-May period from 6.9% in the first four months, the National Bureau of Statistics said, suggesting a slight weakening of the private sector’s appetite to invest as small and medium-sized private firms still face challenges in accessing financing.

Private investment accounts for about 60% of overall investment in China.

Retail sales were more upbeat, rising 10.7% in May from a year earlier, unchanged from April and above analysts’ expectations for a 10.6% rise due to slowing car sales.

China’s vehicle sales in May posted their first back-to-back drop since 2015 after the government rolled back a tax incentive that had boosted car sales and output in 2016.

Outlook for 2018 more worrisome?

Despite the expectation that the economy will lose some steam later in 2017, most economists believe Beijing should still easily meet its full-year growth target of 6.5%, coasting along after an unexpectedly strong first quarter.

But some China watchers are more worried about the risks of sharp slowdown in 2018.

A fund manager survey released by BofA Merrill Lynch this week found Chinese credit tightening ranked as the top tail risk for global investors in June for the second consecutive month, with nearly two-thirds of respondents saying tighter monetary policy would slow activity in the country but have little effect on global growth.

Early warning indicators of a financial crisis were already flashing red, economists at Nomura said in a note this week, echoing the warnings of others such as the Bank for International Settlements (BIS).

"Enjoy the party but stay close to the door," said Nomura, predicting growth would slow sharply to 6.2% in 2018 and adding there could be a greater risk of financial turmoil.

Reuters

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