Most analysts say the latest mainland economic data demonstrates that Beijing's massive spending is helping offset weak exports, but they cannot agree on whether the better than expected figures prove the economy is well on the path to recovery. Last week's data showed that factory output, retail sales, fixed-asset investment and bank lending all accelerated last month, while the decline in consumer prices slowed. But the reports also pointed to a sharper decline in exports and foreign direct investment. Ha Jiming, the chief economist at China International Capital Corp, said macroeconomic data for last month indicated that the economic recovery on the mainland was exceeding expectations. 'Key macroeconomic data released last week shows accelerated domestic economic recovery and stronger than expected domestic demand improvement, along with upbeat data on inflation this week,' Mr Ha said in a research report issued yesterday. Nikhilesh Bhattacharyya, an economist with Moody's Economy.com, agreed, saying recent data showed 'China has begun to recover after poor performance at the end of 2008, which sees strong domestic demand offsetting the effect of slumping exports'. Specifically, the analysts pointed to value-added industrial production increasing by an annualised 8.9 per cent last month, widening from April's 7.3 per cent increase. And retail sales climbed 15.2 per cent, picking up from the 14.8 per cent rise in April. Meanwhile, lending doubled last month, boosting M2, a broad measure of money supply, by 25.7 per cent year on year. Still, policymakers appeared to be less optimistic, with top officials sounding a note of caution in the past few days. Premier Wen Jiabao said at the weekend the economic foundation was not solid enough to build a recovery, as external demand continued to shrink. The mainland 'must not underestimate' the difficulties and needed to prepare to tackle them over the 'long term', he said. Among worrisome trends, exports dived 26.4 per cent from May last year, extending the 22.6 per cent fall in April. And foreign direct investment fell 17.81 per cent last month from a year earlier, although the decline narrowed from April's 22.5 per cent drop. China Banking Regulatory Commission chairman Liu Mingkang warned that people needed to ask whether the positive signs in the economy were real. Li Yang, a leading economist and former adviser to the People's Bank of China, said the economy would not see an immediate recovery as it would take time to find a new growth engine to replace sagging exports. Some analysts pointed out that the recent rebound was largely a result of expansionary monetary policy and massive capital spending led by governments and state-owned enterprises. Wang Tao, the head of China economic research at UBS Securities, said domestic investment had been stimulated by the government and financed by both fiscal funds and bank lending. Ms Wang said that while the strong capital investment had helped offset the negative impact of falling exports, it also raised questions about the sustainability of the growth in domestic demand. Ben Simpfendorfer, chief economist with Royal Bank of Scotland Group, said the past week's data had failed to convince him that the worst was over. 'The economy remains overly reliant on public investment and, increasingly, private residential investment,' said Mr Simpfendorfer. He added that he expected data in the early third quarter to remain choppy, providing limited evidence of a sustained recovery. While some analysts see a V-shaped economic recovery on the horizon, Mr Li, who is the director of the finance institute at the Chinese Academy of Social Sciences, a leading government think-tank, said he expected the mainland's recovery would be W-shaped, meaning that growth would falter once the current fiscal and monetary stimulus wears off, before regaining momentum.