China’s retail sales ‘bright spot’ amid uneven economic recovery
- Retail sales and industrial production grew by 12.4 per cent and 8.8 per cent, respectively, in May from a year earlier
- Fixed-asset investment grew by 15.4 per cent in the January-May period, while the surveyed jobless rate stood at 5 per cent in May, from 5.1 per cent in April
Optimism that China’s retail sales are emerging as an economic “bright spot” must be taken with a pinch of salt as May’s data still points towards an uneven recovery, with growth in the world’s second-largest economy still expected to moderate for the rest of the year.
On the surface, headline growth for all of China’s key indicators dropped back last month as May’s figures for investment, industrial output growth and retail sales fell short of expectations, data released on Wednesday showed.
But after adjusting for base effects, the picture was more mixed, with industrial production and investment slowing while retail sales accelerated, analysts said.
Julian Evans-Pritchard, senior China economist at Capital Economics, said that on a month-on-month basis, domestic consumer spending, which has long been criticised for lagging behind the curve, picked up last month due to the extended Labour Day holiday and a tighter labour market.
Investment and exports are set to cool over the coming months. Consumption [is] a bright spot as momentum elsewhere falters
“We think there is still scope for strong rises in consumption as the virus situation comes under control and the vaccination roll-out broadens,” Evans-Pritchard said. “Investment and exports are set to cool over the coming months. Consumption [is] a bright spot as momentum elsewhere falters.”
The key indicator of consumption also rose by 4.5 per cent in May on an annualised basis over the last two years, up from 4.3 per cent in April, according to the data released by the National Bureau of Statistics.
The index of services production, a gauge of the sentiment in the service sector, had an average two-year growth rate of 6.6 per cent in May, up from 6.2 per cent in the previous month.
Ding Shuang, chief Greater China economist at Standard Chartered Bank, said that China’s economic recovery was moving in a more even direction, as the consumption and service sectors were catching up.
“The recovery has continued to return to the potential output level,” he said. “In terms of the average two-year growth rate, the second quarter was likely to improve from the first quarter to slightly above 5 per cent.”
However, the NBS figures also showed that the month-on-month growth rate of China’s fixed-asset investment slowed down to 0.17 per cent in May from 0.93 per cent in the previous month, cooling to the lowest this year.
The growth rate of industrial output stayed unchanged at 0.52 per cent, but on the basis of average two-year changes, it slowed by 1 percentage points to 6.6 per cent.
Activity growth … will likely trend down in coming months, as pent-up demand fades, exports weaken as developed markets shift back to services consumption as they reopen
“Activity growth … will likely trend down in coming months, as pent-up demand fades, exports weaken as developed markets shift back to services consumption as they reopen, property-related tightening measures finally bite and surging raw materials prices suppress real demand,” said Lu Ting, chief China economist at Nomura.
Ding agreed that China’s quarter-on-quarter economic growth rate was likely to remain flat or even see a decline in the second half of the year, as there was limited room for further improvement.
“But the current situation was no longer able to significantly spur growth rate through large-scale stimulus,” Ding said.
He warned that the protracted weak consumption was still a problem and needed more attention, given the difficulties in returning to its normal growth-rate range.
“Not sure if it is due to the chip shortage or any other reasons, the sales of cars, home appliances and mobile phones all appeared to be not good,” he said.
“Whether it would become common place after the pandemic, like less spending on dining out and shopping or just staying at home, this might be the most important issue the market now needs to think about,” he said. “While we do not know how much it will impact the economy.”
