Monday 15 June 2020 8:53 am

Chinese industrial production picks up but consumers remain cautious

Chinese industrial production rose for a second straight month in May as factories began to recover from the coronavirus hit, but the weaker-than-expected gain suggested that the country’s recovery remained fragile. 

Data released by China’s National Bureau of Statistics also showed sustained contraction in retail sales and investment, showing the continued pressure Covid-19 is placing on the world’s second largest economy. 

China’s industrial production rose 4.4 per cent year-on-year last month – the highest reading since December – according to figures released today. The rise brings the value added from industry to -2.8 per cent for the year to date.

Analysts polled by Reuters had expected a 5.0 per cent rise in output from 3.9 per cent in April, the first expansion since the virus emerged in China late last year. 

But a collapse in export orders amid global lockdowns has left factories more reliant on domestic demand, which is recovering at a more sluggish pace.

Chinese retail sales fell for a fourth straight month. While the 2.8 per cent drop was smaller than the 7.5 per cent slump recorded in April, it was larger than the 2 per cent fall analysts had predicted. 

“There are still restrictions in some demand areas, people remain worried and not many are traveling or going to cinemas, plus there are some virus flare-ups, which will have some impact on consumption,” said Tang Jianwei, senior economist at Bank of Communications in Shanghai.

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Figures released on Monday showed that fixed asset investment fell 6.3 per cent in January-May compared the same period last year, compared with a forecast drop of 5.9 per cent and a decline of 10.3 per cent in the first four months of the year.

Oxford Economics’ Tommy Wu said he was impressed by the data. “We expect China’s economic recovery to continue over the rest of the year, aided by the policy easing,” he said. 

“We think that consumer spending will continue to pick up, albeit at a pace lagging the recovery in investment. Fiscal measures such as the extension of tax cuts and subsidies, as well as faster credit growth, should support economic growth,” he added.

China’s GDP shrank 6.8 per cent in the first quarter, the first contraction on record. 

Highlighting the uncertain outlook, the government did not set a GDP growth target at its annual parliament gathering in May, the first time in nearly two decades it has not done so.

The National Bureau of Statistics said China’s economy has not yet returned to normal and external risks have clearly increased. China would need to see further recovery in June for the economy to eke out an expansion in the current quarter, it said.