China’s Consumers, Factories Hold Up as Property Starts to Cool

• China’s Consumers, Factories Hold Up as Property Starts to Cool

China’s retail sales and industrial output remained resilient in May, while signs emerged that measures to cool the property market are having some effect.

Key Points

• Industrial output rose 6.5 percent from a year earlier
• Retail sales increased 10.7 percent, matching economists’ projections
• Fixed-asset investment expanded 8.6 percent in first five months, trailing estimates as property development investment slowed
• Bloomberg’s monthly China GDP tracker shows growth at 7.14 percent in May, little changed from April.

Big Picture

Economic activity has held up, underscoring the resilience of Chinese businesses and consumers, even as regulators pushed to reduce risks lurking in shadow banking. A weaker property market amid tightening home-purchase curbs in some cities, along with fading producer reflation, pose threats to the outlook.

Economist Takeaways

“A creeping slowdown in real estate added to concerns that 1Q was the high point for growth,” Bloomberg Intelligence economists Tom Orlik and Fielding Chen wrote in a note. “The slowdown is set to be steady not spiraling, as exports remain robust and the government continues to buoy demand through infrastructure spending. Even so, with growth edging down, the People’s Bank of China is likely done with tightening for the time being.”
“Property curbs started to take a toll on investment growth. Other than that, the readings are quite good. Industrial output is growing relatively quickly, and consumption remains robust,” said Gao Yuwei, a researcher at Bank of China Ltd.’s Institute of International Finance in Beijing. “The second quarter in general shows signs of stabilization.”
“Stability is the key,” Zhu Haibin, chief China economist at JPMorgan Chase & Co. in Hong Kong, said in a Bloomberg Television interview. “May data is strengthening the view that the second quarter GDP is quite stable and the first quarter is probably the peak for this year.”
“As indicated by today’s data, the tightening of housing purchasing restrictions in many large cities weighs on real estate investment,” Louis Kuijs, head of Asia economics at Oxford Economics in Hong Kong, wrote in a note. “We expect economic growth momentum to cool in the rest of the year. Infrastructure investment should remain robust in a year of a major leadership reshuffle. And corporate investment should benefit somewhat from renewed profit growth.”
“Property investment will face even bigger downward pressure starting from August, as the effect of home-buying curbs will fully pass through to investment then. Also a high base last year will also contribute to the slowdown,” said Wang Qiufeng, an analyst at China Chengxin International Credit Ratings in Beijing. “Some complementary indicators like the coal and electricity consumption have dropped, foreboding a possible moderation of industrial activities. In general, the economy is very likely to cool down in the second half.”

The Details

• Coal and natural gas led growth in industrial production from a year earlier
• Property development investment rose 8.8 percent in January-May
• Food, drinks and tobacco led gains in retail sales
• Investment in primary industries outperformed services, manufacturing investment
• Mainland stocks slipped after the data was released
• The surveyed jobless rate was below 5 percent in May, and employment remains “very stable,” a statistics bureau spokeswoman said at a briefing