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Official data show that growth in China’s industrial production slowed in May, but consumer spending recovered, highlighting the world’s second-largest economic uncertainty as it navigates the trade war with the US.
Industrial production last month expanded by 5.8% year-on-year, the National Bureau of Statistics said Monday that it fell from the slowest pace of the year and 6.1% growth in April.
Retail sales rose 6.4%, breaking analyst forecasts and fastest expansion since December 2023.
China has struggled for many years to increase consumer demand. This has become a top priority for President Xi Jinping’s government as the economy competes with deflation and slowing the real estate sector.
The launch of a full-scale trade war with the United States is putting pressure on the Chinese economy. Given the low consumer spending, manufacturing activity, a key source of growth in recent years, fell in April and May. Exports to the US fell 34% last month. This was the most steepest since the start of the Covid-19 pandemic.
The US and China agreed last week to maintain a trade war ceasefire in London and reduce tariffs from the 145% level. However, the broader tensions between additional taxation and power continue to cast uncertainty in the global economic outlook.
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Zichun Huang, a Chinese economist in capital economics, said that while retail sales growth represents a “bright place” for the Chinese economy, the recent trade war “had not been sufficient to prevent a greater loss of economic momentum last month.”
The slow growth of the industrial industry was a result of “lower external demand,” she added.
Real estate data released on Monday also showed continued pressure on the economy several years after cash crunches created a wave of defaults among Chinese property developers.
Real estate investments fell 10.7% from January to May compared to the same period last year.
New home prices across 70 of China’s biggest cities fell on average 0.2% on average in May, a month before, a faster decline of 4.1% from the previous year.
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Beijing has launched various advocacy measures for the sector, including cutting mortgages, a program to use unsold properties as social housing, and a drive to complete unfinished real estate projects.
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Housing market health is seen as an important measure of domestic confidence. Last week’s data shows that consumer prices fell 0.1% in May, falling for the fourth consecutive month, increasing concerns about domestic demand.
Analysts at Goldman Sachs said retail sales growth was supported by China’s earlier-time online shopping festivals, “threw demand forward from June to May.”
They predicted further policy easing measures later this year, taking into account “long-term property weakness, increased labor market stress, and unsustainability of export front roads.”
Additional report by Haohsiang Ko in Hong Kong
