China - China's economy: More downbeat data

A grimmer picture of China's slowing economy has emerged from new data. It shows that growth in industrial output and retail sales slackened more than expected last month.

A sharp drop in producer prices has also fuelled concerns that the demand for goods is faltering on the home front.

Wholesale prices fell 1.4 per cent last month, the second month of decline, suggesting that suppliers struggling to sell their goods as orders fall may be cutting prices.

On the bright side, inflation dropped to a two-year low of 3 per cent. That will allow Beijing more room to roll out stimulus to keep growth stable.

'The central bank has already started easing its monetary policy, with the view that this slowdown could continue for a few more months,' said Professor Zhou Qingjie of Beijing Technology and Business University. 'It is clear that the economy is feeling the chill,' he added, referring to last month's data released yesterday.

Although production from Chinese factories expanded by 9.6 per cent from a year ago - and was up from 9.3 per cent in April - it still missed analysts' expectations of 9.9 per cent, a Reuters poll said.

Retail sales grew 13.8 per cent, lower than the forecast of 14.3 per cent and April's 14.1 per cent rise.

But at least the market's worst fear - that Beijing's surprise interest rate cuts on Thursday indicated last month's data would be much more dismal than April's - does not appear to have come true so far.

Industrial output growth still improved from April's 9.3 per cent level, while fixed-asset investment rose 20.1 per cent in the first five months, slightly higher than expected.

In fact, "China's macro environment registered modest improvement in May", noted CLSA China macro strategist Andy Rothman. "The Communist Party's efforts to get planned infrastructure projects and residential investment back on track started to gain traction."

So for now, unless last month's trade data - to be released in the coming days - is shockingly low, Beijing is unlikely to resort to any stimulus as dramatic as the 4 trillion yuan package it rolled out during the 2008-2009 crisis, said China Society of Macroeconomics expert Wang Jian. "For now, China is in a gradual slide, but does not look like it's headed for a hard landing."

Overall, China's economy fell to a nearly three-year-low of 8.1 per cent in the first quarter. Growth may slide to 7 per cent to 7.5 per cent this quarter, Bank of America Corp economist Lu Ting said in a note today.

Grace Ng

The Straits Times

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