Chinese industrial output growth slows as property crisis weighs on economy

Chinese industrial output growth slows as property crisis weighs on economy

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China’s industrial output growth slowed last month while property prices fell more sharply as policymakers struggled to overcome a deep real estate slump and reinforce stability in the world’s second-largest economy.

Industrial production expanded 5.6 per cent year on year in May, data from the National Bureau of Statistics showed on Monday, lagging an analyst forecast of 6 per cent in a Reuters poll and April’s growth rate of 6.7 per cent.

New home prices in China’s “first-tier” cities fell 3.2 per cent year on year last month, compared with a 2.5 per cent decline in April. Property investment in the five months to the end of May also declined, losing 10.1 per cent year on year, while residential property sales tumbled 30.5 per cent.

The data underlines the challenges for Beijing as policymakers struggle to stabilise the property market, which has suffered a prolonged slump that has weighed on wider economic growth. China’s central bank last month announced a fund to help local governments buy up unused housing stock in what was seen as a boost for the market.

Policymakers have turned to industrial production, infrastructure investment and manufacturing to meet economic growth targets, leading to strong exports but also accusations of overproduction from China’s trading partners. Exports in May rose 7.6 per cent year on year in dollar terms, beating expectations.

Fixed-asset investment, meanwhile, rose 4 per cent in the five months to the end of May from the same period last year, compared with a Reuters analyst poll forecast of 4.2 per cent. That figure was also down from 4.2 per cent in the January-April period.

Retail sales offered one positive sign, rising 3.7 per cent year on year, exceeding analyst forecasts of 3 per cent and a 2.3 per cent reading in April. Policymakers have sought to stimulate consumer spending to help offset weakness in the property sector, but many Chinese consumers have held off on bigger-ticket purchases.

Goldman Sachs analysts said the May data and their own research on activity in the first half of June suggested “significant cross-sector divergences remain in the economy — strong exports and manufacturing activity, relatively stable consumption, and still-depressed property activity”.

The NBS said in a statement that the economy continued its upward trend and maintained overall stability in May.

“However, it is also important to recognise that the current external environment is complex and severe, and domestic effective demand remains insufficient,” it said. “The economy’s continued upward trend still faces many difficulties and challenges.”

Separately, the People’s Bank of China on Monday maintained the one-year medium-term lending facility rate, which manages banking sector liquidity, at 2.5 per cent, in line with expectations.

Despite weakness in the domestic economy, Citi analysts said China’s central bank did not want to cut the interest rate further for fear of undermining banks’ net interest margins.

Lower rates could also affect stability of the renminbi exchange rate against the dollar given expectations that interest rates in the US will remain “higher for longer”, the Citi analysts added.

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