China’s May factory output slows, retail sales surprisingly upbeat
Industrial output grows 5.8% from a year earlier, slowing from 6.1% in April and missing expectations for a 5.9% rise in a Reuters poll of analysts
[BEIJING] China’s factory output growth hit a six-month low in May, while retail sales picked up steam, offering temporary relief for the world’s second-largest economy amid a fragile truce in its trade war with the United States.
The mixed data comes as China’s economy strains under US President Donald Trump’s tariff onslaught and chronic weakness in the property sector, with entrenched home price declines showing no signs of reversing.
Industrial output grew 5.8 per cent from a year earlier, National Bureau of Statistics data showed on Monday (Jun 16), slowing from 6.1 per cent in April and missing expectations for a 5.9 per cent rise in a Reuters poll of analysts. It was the slowest growth since November last year.
However, retail sales rose 6.4 per cent, much quicker than a 5.1 per cent increase in April and forecasts for a 5 per cent expansion, marking the fastest growth since December 2023.
All up, the numbers failed to convince investors or analysts that anaemic growth would pick up anytime soon, with Chinese blue chips erasing very brief gains on Monday.
“The US-China trade truce was not enough to prevent a broader loss of economic momentum last month,” Zichun Huang, China economist at Capital Economics, said. “With tariffs set to remain high, fiscal support waning and structural headwinds persisting, growth is likely to slow further this year.”
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Data released earlier this month showed China’s total exports expanded 4.8 per cent in May, but outbound shipments to the US plunged 34.5 per cent, the sharpest drop since February 2020.
The Asian giant’s deflationary pressures also deepened last month.
Supporting retail sales were strong due to Labour Day holiday spending and a consumer goods trade-in programme that was heavily subsidised by the government.
An extended “618” shopping festival, one of China’s largest online retail events by sales, started earlier than usual this year, helping lift consumption.
Caution ahead
Overhanging the activity indicators were persistent headwinds in China’s housing sector, with new home prices extending two years of stagnation.
“We find a general pattern that wherever there is stimulus, it works, like the home appliance sales; but wherever there is no stimulus, like the property development, it struggles,” said Tianchen Xu, senior economist at the Economist Intelligence Unit.
“There are reasons for more caution going forward, especially regarding private consumption, which could see a ‘triple whammy’ of tightening dining curbs on officials, the end of a front-loaded 618 shopping festival, and the suspension of government consumer subsidies.”
Fixed-asset investment expanded 3.7 per cent in the first five months of this year from the same period a year earlier, compared with expectations for a 3.9 per cent rise. It grew 4 per cent in the January-to-April period.
Trump last week said a trade deal that restored a fragile truce in the US-China trade war was done, a day after negotiators from Washington and Beijing agreed on a framework covering tariff rates.
That means the US will charge Chinese exports a total of 55 per cent tariffs, he said. A White House official said the 55 per cent would include pre-existing 25 per cent levies on imports from China that were put in place during Trump’s first term.
For now, trade woes have not been reflected in employment figures, with the urban survey-based jobless rate nudging down to 5 per cent in May, from 5.1 per cent previously.
Beijing last month rolled out a package of stimulus measures, including interest rate cuts and a major liquidity injection, aimed at shielding the economy from the hit from US tariffs.
However, analysts continued to flag challenges for China in hitting its growth target of roughly 5 per cent this year and warned imminent stimulus was unlikely.
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