China retail sales beat; Delays in the industrial and real estate sectors

Retail sales in China exceeded expectations in May, rising 3.7% from a year ago. China retail sales beat expectations for 3% growth thanks to holiday stimulus. However, China’s industrial production in May was lower than expected and the slowdown in the real estate sector showed no signs of abating, increasing pressure on Beijing to accelerate growth. These sectors did not meet forecasts.

The flow of economic data from China on Monday was largely depressing, underscoring the bumpy recovery in the world’s second-largest economy.

Increase in China’s industrial production

China’s industrial production rose 5.6% year-on-year, compared with an expected 6% increase, while fixed asset investment rose 4% from May last year, slightly below the forecast of 4.2%.

Rretail sales China

China’s retail sales, a measure of consumption, rose 3.7% year-over-year in May. Retail sales growth accelerated from 2.3% in April and was the fastest growth since February. Analysts expected a 3.0% increase due to the five-day public holiday at the beginning of the month.

The National Bureau of Statistics reported that total retail sales of consumer goods in China reached 3.92 trillion yuan ($540.32 billion), with sales in urban areas increasing by 3.7% year-on-year and sales in rural areas increasing by 4.1%.

Drop by real estate

On the other hand, the lack of investments in fixed assets was influenced by a stronger decline in real estate investments. The NBS reported that, excluding real estate, total fixed asset investment was 8.6% higher compared to May last year.

Separately, the urban unemployment rate remained stable at 5% in May, unchanged from April and 0.2 percentage points lower than in May last year.

China’s economy grew faster than expected at 5.3% in the first quarter, but analysts say the government’s annual growth target of around 5% is ambitious as the real estate sector remains in a difficult situation.

Real estate investment fell 10.1% year-on-year in the January-May period, deepening from a 9.8% decline in the January-April period.

According to Reuters calculations based on NBS data, new home prices fell 0.7% in May compared with April, marking the 11th consecutive month-on-month decline and the largest since October 2014.

Export and lending data

China’s exports remained steady, rising 7.6% year-on-year in May in U.S. dollar terms, beating a Reuters forecast for 6% growth. However, imports did not meet expectations and increased by 1.8% during this time.

Loan data released on Friday indicated continued weak demand. Outstanding yuan loans rose 9.3% in May from a year ago, the slowest growth on record since 1978, according to Wind Information.

The M1 money supply, which includes cash in circulation and demand deposits, fell 4.2% year-on-year in May, the most on record since 1986, according to Wind Information.

Goldman Sachs analysts pointed out that state media linked to China’s central bank attributed the slowdown in M1 growth to a crackdown on fake loans and outflows related to wealth management products.

Inflation data for May previously showed that consumer prices excluding food and energy rose 0.6% from a year earlier.

Imbalance in growth

Zhiwei Zhang, chief economist at Pinpoint Asset Management, said the imbalance “may be partly due to the fact that there are two more business days in April this year compared to last year, while the business days in May this year and last year are Same”.

He added that policy easing measures in the housing sector have not yet boosted demand from homebuyers at the national level.

“Exports have significantly driven industrial development and manufacturing investment, but property market weakness continues to weigh on household consumption and investment,” said ZhaoPeng Xing, senior China strategist at ANZ.

Stock update

Asian stock markets were mostly softer after mixed data from China, which saw Chinese blue chips fall 0.2%.