Weakness in China investment will add to calls for Beijing action
Economic situation improves as monetary easing takes hold, but further steps needed amid worsening trade outlook, analysts say
China’s economic activities appear to have hit bottom, but the government will need further easing measures to stabilise the still-fragile recovery, analysts say.
After exports growth slumped and imports fell sharply last month, the government will have to rely more on kicking off fresh investment to offset a worsening trade outlook. And that means financing should also be eased.
Fixed-asset investment, after slipping to single digit growth for the first time in 12 years in April, managed to recover to 9.9 per cent from a year earlier, data from the National Bureau of Statistics showed on Thursday.
But the bureau’s senior economist Wang Baobin remained cautious. “Funding bottlenecks and a lack of newly started projects may still curb investment growth going forward,” Wang said.
Over the past few years, the new leadership has had to fight against serious overcapacity and deflationary pressures as a legacy of massive stimulus since 2008.%
A slow recovery seemed to be under way.
Growth in factory output hit a three-month high of 6.1 per cent in May from a year earlier, exceeding April’s 5.9 per cent growth, while retail sales held steady, the bureau said.
“The economic situation has recovered slightly,” Nomura chief China economist Zhao Yang told the South China Morning Post. “The effects of monetary easing steps since the fourth quarter have begun filtering into the real economy.”
The economic situation has recovered slightly
Gross domestic product growth might slow to 6.6 per cent this quarter from a year earlier, following a 7 per cent expansion in the first, Zhao said.
That was partly due to a high comparison base. In the second quarter last year, GDP growth accelerated to 7.5 per cent from 7.4 per cent in the first.
Economists from the central bank this week cut their outlook for growth for the year by a tenth of a percentage point, to 7 per cent.
The central bank might need to cut interest rates twice more this year, in addition to two more cuts in banks’ reserve requirement ratio (RRR), with the first RRR reduction probably coming next month, Zhao said.
Since November, the central bank has lowered interest rates three times and RRR twice, while it also injected liquidity to selected lenders to support infrastructure projects.
Such policies helped new yuan loans rise to 901 billion (HK$1.13 trillion) in May from 708 billion yuan in April.
Growth in M2 – a measure of money supply – quickened to 10.8 per cent from 10.1 per cent a month earlier, although it was still below the annual target of 12 per cent.
On Wednesday, the Ministry of Finance said it would allow local governments to swap another 1 trillion yuan worth of debt into lower-yield municipal bonds. The move will help lower local authorities’ debt burden and encourage them to invest more.
