China’s Economy Stabilizes as Lending Suggests Easing Is Working

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China’s slowdown stabilized last month in the wake of monetary stimulus and a loosening of fiscal restrictions on indebted local governments.

Growth in industrial output and credit accelerated, helping offset a further drop in the pace for fixed-asset investments which includes property construction, coal plants and infrastructure projects. Bloomberg’s monthly gross domestic product tracker advanced the most since January, narrowing the gap with Premier Li Keqiang’s expansion target of about 7 percent for the year.

Along with strong jobs gains in the U.S. and improving readings from Japan, stabilization in China bolsters a global outlook that’s clouded by uncertainty in Europe. The steadier economic report card gives Li more time to assess the impact of monetary easing and a debt-swap deal to help local governments.

“The economy was bottoming in May,” said Wang Tao, chief China economist at UBS Group AG in Hong Kong. “We won’t see a strong rebound, but we will see a slight improvement in the third quarter, as all kinds of stabilizing measures intensify.”

Industrial output rose 6.1 last month from a year earlier, the statistics bureau said Thursday, accelerating from 5.9 percent in April and beating the median estimate of 6.0 percent in a Bloomberg survey. Retail sales added 10.1 percent in May, while fixed-asset investment excluding rural households climbed 11.4 percent in the first five months.

Lending Gains

Aggregate financing, which includes bank loans and off-balance credit, was 1.22 trillion yuan ($197 billion), the People’s Bank of China said. That compares with the median estimate of 1.13 trillion yuan in a Bloomberg survey. New yuan loans were 900.8 billion yuan.

The Shanghai Composite Index rose.

Bloomberg’s monthly GDP tracker, a weighted average of monthly economic indicators, climbed to 6.55 percent year-on-year in May from 6.4 percent in April.

“While the urgency of policy easing is reduced, we continue to believe more is required,” Bloomberg economist Tom Orlik wrote. “We put a high probability on a further rate cut in the third quarter. More targeted measures to support local government infrastructure and social housing projects seem assured.”

— With assistance by Xin Zhou

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