China economy stabilises as industrial output rises 2.7% in May

China economy stabilises as industrial output rises 2.7% in May

A view shows cranes in the front of the skyline of the Central Business District CBD in Beijing.

BEIJING Reuters -- China's economy stabilised somewhat in May after a slump the previous month as industrial production rose unexpectedly, but consumption was still weak and underlined the challenge for policymakers amid the persistent drag from strict COVID curbs.

The data shows a partial recovery in the world's second-biggest economy after businesses and consumers were hit hard in March and April due to full or partial lockdowns in dozens of cities, including a protracted shutdown in Shanghai.

In May, industrial output grew by 0.7% from a year earlier, after falling 2.9% in April, according to data from the National Bureau of Statistics NBS. That is compared to the 0.7% drop predicted by analysts in a Reuters poll.

Retail sales were down 6.7% as shoppers were forced to stay in their homes in Shanghai and other cities, despite a 6.1% drop in the poll and an improvement from a 11.1% slump in April.

The country sold 1.37 million passenger cars last month, down 17.3% from a year ago, narrowing the decline of 35.7% in April, according to the China Passenger Car Association.

It was reported that fixed asset investment, a key indicator of policymakers looking to prop up the economy, rose 6.2% in the first five months, compared with an expected 6.0% rise and a 6.8% gain in the first four months.

The government has been accelerating infrastructure spending to boost investment. China's cabinet has announced a package of 33 measures covering fiscal, financial, investment and industrial policies to revive its pandemic-ravaged economy.

The jobless rate in the United States fell to 5.9% in May from 6.1% in April, more than the government's 2022 target of below 5.5%. The surveyed jobless rate in 31 major cities went up to 6.9%, the highest on record.

Some economists believe that employment will worsen before it gets better, with a record number of graduates entering the workforce in the summer.

The Chinese government has set an annual economic growth target of around 5.5% this year, but many economists believe that is increasingly out of reach.

In May, Chinese banks extended 1.89 trillion yuan $280.62 billion in new loans, nearly tripled April's tally and beat expectations. 38% of the new monthly loans were in the form of short-term bill financing, suggesting real credit demand still remains weak.

The central bank kept its medium-term policy rate unchanged for a fifth consecutive month, matching market expectations.

The world's biggest manufacturer reported better than expected export growth in May, due to the delivery of postponed export orders in the past, but the subdued external demand due to the Ukraine war and the robust production recovery of Southeast Asian nations threaten the country's trade outlook, as well as the delivery of postponed export orders.

With only half of the month remaining in the second quarter, China may find it difficult to achieve positive economic growth in the second quarter as requested by Premier Li Keqiang in May, as fears of new lock-downs loom large under China's zero-COVID policy.

One week after the reopening of Shanghai, the local government ordered 15 of the city's 16 districts to undertake mass testing in order to contain a jump in cases tied to a hair salon.

The capital city of Beijing is grappling with an explosive and ferocious COVID 19 outbreak, which was linked to a bar, with authorities shutting down all entertainment venues in the city's most populous district of Chaoyang last week.

The recovery of the economy could be hampered by the possibility of future COVID outbreaks as Beijing has shown no signs of easing its zero-COVID policy, according to analysts.