China’s economic landscape faced renewed challenges in May, characterized by a deepening slump in the housing market and lackluster industrial production figures, prompting calls for decisive government intervention to spur economic activity.
The latest data released on Monday underscored the severity of the downturn in China’s property sector, a key driver of economic growth. Both real estate investment and home prices continued to decline significantly last month, exacerbating concerns about the broader economic outlook.
Industrial production, another crucial pillar of China’s economy, grew by 5.6% year-on-year, according to the National Bureau of Statistics, marking a slowdown from the previous month and falling short of market expectations. In contrast, retail sales showed a slight improvement, surpassing forecasts, although consumer spending remains well below pre-pandemic levels.
Economists have highlighted the need for additional stimulus measures from Beijing to bolster consumer demand and address economic imbalances, particularly if China is to achieve its modest 5% growth target for the year. Proposed measures include increased government spending and enhanced efforts by the central bank to stabilize the housing market and facilitate credit flow.
Jacqueline Rong, chief China economist at BNP Paribas SA, expressed disappointment over the lack of significant improvement in property sales despite supportive measures. She emphasized the necessity for policy adjustments, such as reducing mortgage rates, to stimulate housing demand effectively.
The People’s Bank of China opted to maintain its key interest rate unchanged for the tenth consecutive month on Monday, citing the need to support the stability of the yuan amid external pressures from the US Federal Reserve.
Bloomberg economists Chang Shu and David Qu noted that while policy support could mitigate economic challenges, the central bank’s focus on currency stability limits its ability to lower interest rates, at least until there are changes in US monetary policy.
In response to the economic data, Chinese stocks experienced a decline, with the CSI 300 Index closing marginally lower, while shares of Chinese developers saw a notable drop. Fixed-asset investment for January to May increased by 4%, slightly lower than the rate recorded in the first four months of the year, despite heightened government bond issuance for infrastructure projects.
Despite challenges in consumption and property markets, China’s economic growth remains resilient, driven by exports and investments in new energy sectors. However, uncertainties loom as international trade barriers pose risks to China’s export-driven growth strategy.
Looking ahead, analysts remain cautious about the sustainability of recent improvements in retail sales, which, although showing initial signs of recovery, may falter amidst persistent economic uncertainties.
Efforts to stimulate domestic demand include recent initiatives promoting upgrades in industrial machinery and offering incentives for car purchases. However, these measures have yielded mixed results, as reflected in the modest improvement in automobile retail sales in May.
China’s recent efforts to stabilize the housing market include relaxing mortgage rules and implementing financial incentives, yet challenges persist amid subdued domestic demand and unfavorable global trade conditions.
As business confidence wavers and credit growth stagnates, there is growing consensus among economists for additional fiscal and monetary support to sustain China’s economic momentum and mitigate potential downturn risks.
In a Bloomberg TV interview, Helen Qiao, chief Greater China economist at Bank of America Global Research, emphasized the necessity for new stimulus measures to prevent a weakening of China’s growth trajectory in the coming months.