China’s trade, inflation and lending data for May all trailed estimates, signaling weaker global and domestic demand that will test the nation’s leaders’ resolve to forgo short-term stimulus for slower, more-sustainable growth.
Industrial production rose a less-than-forecast 9.2 percent from a year earlier and factory-gate prices fell for a 15th month, National Bureau of Statistics data showed today in Beijing. Export gains were at a 10-month low and imports dropped after a crackdown on fake trade invoices while fixed-asset investment growth slowed and new yuan loans declined.
The data add pressure on President Xi Jinping and Premier Li Keqiang to shore up growth less than three months into their tenure, after first-quarter expansion unexpectedly slowed. While the figures boost the case for easing monetary policy or approving more spending, the leaders’ room is limited by rising home prices, financial risks and overcapacity.
“Growth remains unconvincing and the momentum seems to have lost pace in May,” said Louis Kuijs, chief China economist at Royal Bank of Scotland Group Plc in Hong Kong. “While we still do not worry too much about growth in 2013 ending up significantly lower than the government’s comfort zone, on balance this weekend’s data is likely to strengthen the calls for a more expansionary macroeconomic policy stance.”
Analysts surveyed by Bloomberg News last month trimmed economic-expansion forecasts for the April-June period to a median projection of 7.8 percent from an 8 percent pace forecast in April.
Li told provincial leaders yesterday that while growth is still relatively fast and within a reasonable range and employment is stable, “complicated factors” are ahead and must be closely monitored, the official Xinhua News Agency reported. Xi said at a California summit with U.S. President Barack Obama that “we have full confidence in sustained and healthy long-term economic development” and that risks and challenges are controllable.
Industrial production compared with the median estimate for a 9.4 percent increase, with growth the weakest for a January-May period since 2009. Fixed-asset investment excluding rural areas rose 20.4 percent in the first five months from a year earlier, down from a 20.6 percent pace in January-April, statistics bureau data showed. May’s retail-sales growth of 12.9 percent matched the median projection of analysts.
May exports rose 1 percent from a year earlier, down from 14.7 percent in April, while imports dropped 0.3 percent from a year earlier. The median estimates of analysts were for 7.4 percent export growth and 6.6 percent import gains. The $20.4 billion trade surplus compared with forecasts for $20 billion.
“This shows the real state of the Chinese export situation,” said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong. The data give a “pretty depressed” picture, with weak external demand and a yuan that has appreciated substantially against a trade-weighted basket of currencies, said Shen, who previously worked at the European Central Bank.
The slowdown in May’s trade figures was partly the result of “arbitrage trade” with Hong Kong being curbed, the customs administration said in a statement yesterday. Appreciation in the yuan and the worsening trade environment, as well as a domestic slowdown, weak external demand and high business costs, also contributed, the agency said.
New local-currency lending of 667.4 billion yuan ($109 billion) trailed the median estimate of 34 economists and was down from 793.2 billion yuan a year earlier, People’s Bank of China data showed. Aggregate financing of 1.19 trillion yuan compared with 1.14 trillion yuan in May 2012, while M2 money supply grew 15.8 percent from a year earlier.
The PBOC said in a June 7 financial-stability report that overdue loans rose 46 percent last year, adding to signs of strain in the banking system.
The consumer price index rose 2.1 percent in May from a year earlier, statistics bureau data showed, dragged down by slower food inflation and below all 39 economists’ estimates. The producer price index fell by a more-than-estimated 2.9 percent, the biggest drop since September.
Baoshan Iron & Steel Co., China’s biggest publicly traded steelmaker, said yesterday it cut product prices for hot-rolled and cold-rolled steel for July delivery, lowering rates for the second straight month. Government data today showed rolled steel output growth accelerated to 11.3 percent in May from a year earlier after an 8.1 percent pace in April.
“There’s some room for the central bank to cut interest rates,” though it’s not the preferred option for the PBOC, which will lean more toward easing via injecting funds into money markets to ensure stable liquidity and credit supply for growth, said Zhu Haibin, chief China economist at JPMorgan Chase & Co., in Hong Kong.
The trade slump adds to concerns that the global recovery is losing momentum even as the U.S. shows signs of strengthening. The ECB last week forecast the 17-nation euro area will contract 0.6 percent this year, more than its March estimate of 0.5 percent. In the U.S., employers added more workers than forecast in May.
Exports “may remain weak in the near term” as the U.S. economy softens, which is likely to shift expectations for a strengthening yuan, said Ding Shuang, senior China economist at Citigroup Inc. in Hong Kong. The yuan has risen 1.6 percent this year against the U.S. dollar and about 14 percent against the yen, the most among Asian currencies tracked by Bloomberg.
--Zhou Xin. With assistance from Nerys Avery in Beijing and Ailing Tan in Singapore. Editors: Scott Lanman, Nerys Avery
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