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China Industrial Output Growth Holds Steady but Investment Weakens
Private fixed-asset investment grew 3.9% in January-May, down from an already weak 5.2% in the first four months of the year
By MARK MAGNIER
Updated June 13, 2016 4:02 a.m. ET
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BEIJING—Industrial production in China held steady in May but investment growth weakened as tepid demand and industrial overcapacity continued to weigh on the world’s second-largest economy.
Value-added industrial output, a rough proxy for economic growth, rose 6.0% in May from a year earlier, the same as the previous month, data from the National Bureau of Statistics showed Monday. This matched a median forecast by 15 economists in a Wall Street Journal survey.
Nonrural fixed-asset investment, a closely watched measure of construction activity, climbed by a less than expected 9.6% year-over-year in the January-May period, compared with an increase of 10.5% for the first four months of the year.
Retail sales grew by a slightly less than expected 10.0% in May compared with a year earlier, down from a 10.1% increase in April.
“The data is not that good. There’s definitely some kind of downside risk to the economy, especially with fixed asset investment,” said Commerzbank AG economist Zhou Hao. “Growth is under pressure.”
The unexpected weakness was largely due to a falloff in private investment, which grew 3.9% in January-May, down from an already weak 5.2% in the January-April period. This may prompt Beijing to boost infrastructure spending further or cut required bank reserves to ensure China hits its growth target of 6.5% to 7% this year, economists said.
“Private investment is difficult to boost very quickly, so the response will have to be largely from the government spending side,” said Standard Chartered (Hong Kong) Ltd. economist Ding Shuang. “It’s very difficult to use monetary policy further because it’s already quite accommodative and inflation will be higher than last year.”
An added factor constraining monetary policy, he added: the prospect of a U.S. rate increase later in 2016.
Oriental Furniture Co., which makes marble tables and flooring at its factory in Songyuan, a city in northeastern China, said business is weaker than a year ago and the company doesn’t expect to invest much in 2016 given the tepid outlook. The company also is grappling with changing tastes as more farmers move into smaller cities to buy apartments, it said.
“They don’t like the styles of our products or marble,” said Gao Junming, the company’s general manager, adding that he’s looking at new product lines and more government stimulus to boost company prospects. “Hopefully that will allow us to sell more,” he said.
Industrial deflation, excess production capacity and difficulty in getting corporate loans were major factors behind May’s weak private investment figures, said Sheng Laiyun, a spokesman with the statistics bureau. “The slowdown in private investment shows that economic growth momentum needs to be strengthened,” Mr. Sheng said at a press conference, adding that China’s economic fundamentals remain sound.
Retail spending held up despite weakening company profits and signs that more people may be worried about losing their jobs, although this isn’t enough to counterbalance China’s manufacturing downdraft, economists said.
Consumer confidence in China edged down in May over April, according to the ANZ-Roy Morgan China Consumer Confidence Index, with fewer respondents expecting their personal financial situation to improve in the immediate future, it said.
Profits at state-owned enterprises declined 8.4% in the first four months of 2016 from the same period a year earlier, according to official data.
China’s housing sales in the first five months of the year continued to strengthen, though at a slower pace than earlier this year as larger cities tightened sales restrictions to rein in overheating property prices.
Housing sales rose 53.4% year-over-year during the January-to-May period, the National Bureau of Statistics said Monday, compared with a 61.4% increase in the first four months of 2016.
In a bid to prop up the flagging manufacturing sector, Beijing last month announced plans to boost factory innovation and support the shipbuilding, advanced equipment and general aviation industries.
China attracted 8.89 billion dollars in foreign direct investment in May, down 1% from a year earlier, the Ministry of Commerce said Sunday, with some 70% of FDI in the first five months directed at the services industry.
The disappointing May data underscore the limits of traditional debt-fueled stimulus in countering deeply-rooted problems. As growth slowed to a seven-year-low of 6.7% in the first quarter of 2016, China injected more credit into the economy than it did in early 2009 at the depth of the global financial crisis, and boosted fiscal spending.
But economists say this short-term fix threatens to worsen China’s already serious debt problem and fuel overcapacity. China’s total debt has increased to the equivalent of about 225% of its gross domestic product, up from 160% in 2007, the International Monetary Fund said Saturday.
—Liyan Qi, Grace Zhu and Esther Fung contributed to this article.
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