Weak data point to slowdown in China
BEIJING: China’s economy is finally starting to cool under the weight of a multiyear crackdown on riskier lending that is pushing up borrowing costs for companies and consumers, with data released yesterday pointing to a broad slowdown in activity in May.
China’s central bank sparked concerns over the health of the economy earlier in the day when it left short-term interest rates unchanged, surprising markets which had expected it to follow a hike by the Federal Reserve, as it has tended to do.
Industrial output, investment and retail sales all grew less than expected, suggesting further weakness ahead if Beijing perseveres with its crackdowns on pollution, questionable local government spending and off-balance sheet “shadow” financing.
The data, which showed the slowest investment growth in over 22 years, “was all shockingly weak by Chinese standards,” economists at Rabobank said, adding that the readings might explain the central bank’s decision to keep rates on hold.
China has been walking a fine line between rolling out measures to curb financial risks and pollution and tapping the brakes so hard that business activity slows sharply.
Much of their effort so far has focused on the banking sector rather than corporate debt reduction or deleveraging — possibly explaining why China’s headline growth has been so surprisingly solid.
GDP has expanded at a steady 6.8% for three straight quarters.
But official and unofficial gauges are now showing the regulatory crackdown is starting to filter through to the broader economy, with companies complaining it is harder to get financing and a growing number of firms defaulting on bonds.
China’s fixed-asset investment (FAI) growth cooled to 6.1% in January-May from the same period a year earlier, the slowest pace since at least February 1996. Analysts polled by Reuters had expected it to remain steady at 7%, the same as in January-April.
May industrial output rose 6.8% from a year earlier, versus estimates for a small dip from April’s 7%.
Retail sales grew 8.5% in May, the slowest since June 2003, according to Reuters calculations. Analysts had expected a slight pick-up to 9.6%.
The slowdown was due to seasonal factors and consumers delaying purchases, Mao Shengyong, a spokesman at the National Bureau of Statistics, told reporters.
Auto sales dipped 1%. China’s auto industry said on Monday that some car buyers were holding off on purchases, presumably until import tariffs are cut from July 1.
Trade was one of the few bright spots in May data, but analysts expect exports may also lose momentum in coming months amid rising trade tensions with the United States.
“Chinese exporters have been frontloading their shipments due to changes in the international trade environment,’’ Commerce Ministry spokesman Gao Feng said.
A third round of Sino-US trade talks early this month ended with few signs of progress, as Beijing warned that any trade and business deals reached with Washington would be void if it implemented tariffs.
Washington is expected to release a list of some $50 billion worth of Chinese goods that will be subject to a 25% tariff today. But it is not clear when US President Donald Trump would activate them, if he chooses to do so.
Following yesterday’s data, ING cut its estimate for China’s second-quarter GDP growth 6.7% from 6.8%, bringing it more in step with other forecasters.
Oxford Economics and Nomura kept their views unchanged at 6.4% and 6.6%, respectively. Commerz Bank also held steady, saying its 6.4% estimate “is already low”.