China’s retail sales grew at a faster-than-expected pace in May while industrial output missed forecasts but remained relatively robust, painting a mixed picture of the world’s second-largest economy.
Total retail sales of consumer goods, a gauge of household spending, were up 3.7%, according to government data published on June 17. This was better than April’s 2.3% growth and beat the forecasts of several financial institutions and analysts. Still, it was the third lowest reading since last August and may not allay longer-term concerns over tepid consumption.
Liu Aihua, a spokeswoman for the National Bureau of Statistics (NBS), credited Labor Day holidays, trade-in programs meant to encourage consumers to replace old appliances and the “618” shopping festival as reasons for the improved sales.
All subcategories of retail sales rose year on year apart from jewelry, automobiles, and building and decoration materials. The value of car sales fell 4.4% on the year, down for the third consecutive month.
Aided by strong exports, industrial production grew 5.6% from a year earlier, but this was down from a 6.7% rise last month and a few ticks below a consensus forecast of 6.0% in a Reuters poll.
Taken together, the retail and industrial data offered at least some hope for narrowing a mismatch between China’s consumer spending and the capacity of its manufacturing sector, which has worsened trade tensions in recent months. The US and Europe—fearing that China’s government-subsidized production of green products like electric vehicles will flood their markets with exports Chinese consumers are unwilling or unable to buy—have moved to raise tariffs.
But Oxford Economics called the May data “noisy” and said the statistics showed “no clear growth driver.”
“Retail sales beat market (and our) expectations in May, but as was the case in previous months, sequential gains were focused on low-value discretionary products, reflecting still-poor consumer sentiment and spending capacities,” the research firm said in a note.
Meanwhile, China’s seemingly inexorable real estate crisis continued to weigh on investment in fixed assets. The overall investment figure expanded 4.0% in the first five months of the year, below the forecast 4.2%, while property investment dropped 10.1% during the period.
In mid-May, China’s central bank rolled out a series of measures aimed at breaking out of the prolonged property slump. This included the establishment of a new lending program worth RMB 300 billion (USD 41.4 billion) to encourage local governments to “digest” excess housing supply. But Monday’s data suggests the move has had a limited impact so far.
Prices of new homes in first-tier cities dropped 0.7% compared to the previous month and were down 3.2% on the year, extending the declines in April. A similar trend was recorded in smaller cities.
“It will take some time for the policy effects to be released, and the real estate market is still in the process of adjustment,” said Liu, the NBS spokeswoman. She warned of existing challenges facing the economy, saying that “the current external environment is complex and severe, and domestic effective demand is still insufficient.”
Oxford Economics argued that “more forceful property easing measures, rather than the slow-drip of incremental measures seen last year, are now necessary and likely if authorities were to successfully engineer a desired shallow house price correction path.”
Other economic signals for last month have been uneven. China’s manufacturing activity contracted in May after two months of expansion. While the resilience of overseas markets helped drive exports up by 7.6% on the year, growth in imports slowed to 1.8% while the consumer price index stayed low at 0.3%. The jobless rate stabilized at 5.0% in May, unchanged from April.
The Chinese government is targeting economic growth of around 5% this year, but some economists forecast a slower pace due to the property woes and weak consumption.
Despite the better-than-expected May retail sales, Nomura said in a note that factors such as soft CPI inflation, tepid credit demand in the household sector, negative auto sales growth, and lackluster leisure services during this month’s Dragon Boat Festival “all point to a lack of consumer confidence.”
“Overall growth momentum has remained sluggish, as the property fallout drags on and as the export sector faces increasing headwinds from trade disputes. The weak activity data in April-May lend support to our below-consensus GDP growth forecast of 4.6% [year on year] in Q2,” Nomura said, after the first quarter’s 5.3% expansion.
“While we view the policy pivot in the property sector as real, ensuring housing delivery is a daunting task and markets need to exercise patience while awaiting more significant measures,” Nomura added.
On June 17, China’s central bank kept the one-year medium-term lending facility (MLF) rate, at which it lends to financial institutions to boost liquidity, unchanged at 2.5%.
This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.