Friday, June 14, 2019 - 07:14

MNI DATA ANALYSIS: China Data Still Sluggish In May

BEIJING (MNI) - China's macroeconomic indicators continue to show weakness in the May data prints, with both industrial output and fixed-asset investment (FAI) slipping below expectations, although retail sales picked up on strong May holiday demand.

As downside risks grow, ANZ expects the People's Bank of China (PBOC) to send more supportive signals in the not too distant future. Besides a further 100 bps cut in the reserve requirement ratio over the rest of the year, ANZ also expects the central bank to lower the 7-day reverse repo rate by 5 bps in Q3 following a U.S. Fed rate cut, according to a note circulated by the bank.

Further credit boosting measures will also be in the pipeline, ANZ added.


One brighter spot is the recovery in retail sales, which grew rapidly to 8.6% y/y in May from April's 16-year low of 7.2%, outperforming the 8.3% forecast in the MNI survey.

The NBS attributed the rebound to the four-day Labor Day holidays at the beginning of May. This compared to the same month last year during when there was only a one-day break.

Car sales shook off negative growth for the first time in 11 months, growing 2.1% y/y in May, compared with April's 2.1% decline.

Dampened by sluggish home sales earlier, housing-related consumption continued the weakness seen in April. Construction materials drop 1.1% y/y, expanding the loss of 0.3% seen in April.

Though retail sales are expected to underpin growth going forward, it could further weaken amid a cooling real estate sector.


FAI recorded 5.6% y/y growth in the Jan-May period, missing the 6.0% median forecast in an MNI survey and lower than the 6.1% recorded in the first four months.

The contraction was mainly due to retreating property investment, which moderated slightly to 11.2% y/y from April's 11.9%.

With land purchases, housing starts, and home sales showing signs of fatigue, property investment may enter the downtrend channel, said Zhang Yiping, analyst at China Merchants Securities. He also noted that as long as construction growth remains stable, property investment will continue to prop up growth. Construction rose8.8% y/y, flat from the previous period.

Infrastructure investment grew by 4.0%, decelerating from 4.4% y/y in the first four months. While many economists think such low-level growth will soon be be boosted by Beijing's new policy allowing local government to use proceeds from special bonds as project capital. This will help address the lack of funding for infrastructure projects.

Manufacturing investment edged up 0.2 percentage point to 2.7%, accelerating for the first time this year, though remaining low.

Industrial output growth continued to fall in May, slowing to 5.0% y/y from April's 5.4% y/y, posting the lowest level this year. The result was below the 5.4% projected by analysts polled by MNI. Sluggish manufacturing production, which hit a record low in May with 5% y/y growth, was one of the factors dampening industrial output.

--MNI Beijing Bureau; +86 (10) 8532-5998; email:
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