Chinese industrial production holds steady in May but investment growth slows

Value-added industrial output, one of the leading indicators for economic growth, rose 6 percent year on year in May, unchanged from April and in line with expectations.

State sector investment remained strong, growing at over 20% year-on-year, which means the private sector investment growth barely expanded at all last month.

To break this down; fixed-asset investment in agriculture was up 20.6 percent in the January-May period, followed by 11.9 percent for the service sector and 5.8 percent for industry. A further increase in debt levels could handicap China’s long-term economic growth, Mr David Lipton, first deputy managing director of the International Monetary Fund, said on Saturday.

In the first five months, retail sales were up 10.2 percent year on year, according to the National Bureau of Statistics. “I see rising odds of a cut in RRR (banks’ reserve requirements) or even a policy rate cut, before the end of the second quarter”, Zhou Hao, senior Asia emerging market economist at Commerzbank said in a note after May activity data on Monday.

Construction starts across residential and commercial real estate rose 18.3% on-year to 595.2 million square meters, moderating from the 21.4% gain recorded in the first four months of 2016.

Sheng Laiyun, a National Bureau of Statistics spokesman, said “The slowdown in private investment shows that economic growth momentum needs to be strengthened”.

“But we must be aware that the worldwide environment remains complicated and severe, the painful domestic structural adjustments continue, and the economy is still under downward pressure”.

The figures are still in-line with the government’s official target of between 6.5 to 7 percent growth for the year. Analysts believe industrial production has been supported by the government’s infrastructure spending spree and a recovery in the property market. Consumer inflation cooled, but production price deflation eased markedly, reducing some of the strains on Chinese companies which are battling shrinking profit margins.

China is working towards fixing issues such as excess industrial capacity and is also trying to restructure its state-owned-corporations.