Jittery China needs more stimulus for expansion
No pick-up despite rate cuts
CHINA’S ailing economy showed few signs of improvement in May, with factory output steadying but investment growing at its slowest rate in nearly 15 years, pointing to further weakness unless Beijing ramps up its stimulus efforts.
A flurry of data from power output to retail sales released yesterday showed no convincing pick-up in the world’s second-largest economy despite three interest rate cuts since November.
That led some analysts to predict growth could cool further in the second quarter, after hitting a six-year low of 7 percent at the start of the year, and increasing the chance of China cutting interest rates again as early as this month.
“Today’s activity data, plus the soft external trade figures released earlier, suggest that gross domestic product growth could miss 7 percent in the second quarter,” economists at ANZ Bank said. “We believe that the People’s Bank of China will cut interest rates by 25 basis points this month.”
Fixed-asset investment, a crucial driver of the world’s second-largest economy, rose 11.4 percent in the first five months of this year from the year-earlier period, missing a poll forecast for a 12 percent gain, the same as in April.
Unsold homes
Some analysts blamed the weak reading on China’s cooling housing market, which they said would not turn the corner until high inventories of unsold homes were cleared, thereby reviving investment and construction activity.
Manufacturing activity, by comparison, showed signs of steadying, but remained at subdued levels. Factory output rose 6.1 percent in May compared with a year ago, largely in line with expectations and
up marginally from April.
China’s factory output has grown at an average monthly rate of about 6 percent this year, almost a third of the pace seen in 2007, with soft demand leaving many firms with excess capacity.
Other indicators also pointed to persistent weakness, with electricity output, un- changed from a year earlier. ANZ noted railway cargo declined by 11.5 percent, the lowest level on record, reflecting weak domestic trade flows.
Record-low
Separate data from the central bank showed growth in the broad M2 money supply picked up more than expected to 10.8 percent, but remained within sight of a record-low 10.1 percent struck in April.
China’s banks made 900.8 billion yuan (R1.813 trillion) worth of new loans in May, up sharply from April, but economists say many banks remain wary of lend- ing with bad loans on the rise, and suspect a hefty share of “new” loans may be roll-overs of existing debt, or for day-today company operations, not for new activity.
The disappointing investment data followed figures earlier this week that showed China’s import growth had slumped more than expected last month, while exports fell for the fourth consecutive month, albeit at a slower pace. Analysts are divided over whether the worst is over.
Economists at the central bank said this week that they expected growth to pick up modestly in the next six months. – Reuters