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Wendy Wu

Growth in investment continued to deteriorate in China in May and the dismal data may cloud the nation’s economic outlook in the second quarter of the year, according to economists.
Overall fixed-asset investment rose lower than expected at 9.6 per cent in the first five months, the National Bureau of Statistics said on Monday. That is much weaker than the increase of 10.5 per cent in the first four months.
Investment from private capital, which accounts for over 60 per cent of overall investment and creates half of all new jobs each year, fared even worse.
It rose only 3.9 per cent, compared with the 5.2 per cent gain in the previous four months.
“The pace of reforms has not been fast enough to prompt private investment,” said Sheng Laiyun, a spokesman at the statistics bureau, speaking at a press briefing in Beijing.
Industrial output rose six per cent and retail sales gained 10 per cent, little changed from April and largely in line with market expectations.
“Given today’s data, there is higher risk that China will miss the growth target of 6.5 per cent in the second quarter,” said Raymond Yeung, an economist at ANZ.
Foreign direct investment in China fell one per cent to US$8.89 billion in May from the same month last year, the first year-on-year drop since last December, according to data released by the Ministry of Commerce.
China’s exports fall in May as central bank researchers release gloomy revised forecast for the sector
The State Council sent fact-finding teams last month in a bid to stem the deceleration of growth in private investment.
The pace of reforms has not been fast enough to prompt private investment
Sheng Laiyun, statistics bureau spokesman
Sheng said the inspection teams found that local governments still impose restrictions on access to private capital and funding difficulties for the private sector persist.
Steven Zhang, chief economist at Morgan Stanley Huaxin Securities, said: “It is hard to introduce effective measures which can reverse the downward growth in private investment over the short term.”
He noted that sectors which are open to private capital all suffer from overcapacity, while there are high thresholds for them to enter new sectors, leading to a serious fall in private investment.
The central government signalled last month that it would abandon a credit-fuelled economic growth model, which was employed in the first quarter to shore up GDP growth of 6.7 per cent.
If private investment does not increase, “economic growth may go back to a downward path,” said Zhang.
According to data compiled by the China International Capital Corporation, a leading domestic brokerage firm, private investment rose only 0.9 per cent in May from the same month last year, worsening from a rise of 4.3 per cent in April.
“A stable, coordinated, transparent and effectively loose policy environment is crucial for lifting the confidence of private investment,” it said.
But Sheng at the statistic bureau attempted to downplay concerns about the wider economy. He said employment was better than expected and the surveyed unemployment ratio had fallen in May from April.
IMF urges China to tackle ‘high’ corporate debt immediately
The data from the Ministry of Human Resources and Social Security showed a total 5.77 million new urban jobs were created from January to May, nearly 60 per cent of this year’s target.
He also said the weakness of global trade and the uncertain outlook over a possible interest rate hike by the US Federal Reserve had added to pressure on China’s growth prospects.
The referendum in Britain on whether to sever its ties with the European Union next week is also causing jitters on international markets.
Property investment in China shows signs of cooling, according to the latest figures. It gained seven per cent from January to May, but that compares with a rise of 7.2 per cent in the previous four months.
Growth in China’s service sector cools to three-month low, survey suggests
Liu Dongliang, an economist with China Merchants Bank, said: “Property investment alone cannot support overall investment. It is expected overall investment will continue to fall in the future.”
GDP in the second quarter may be much lower than the first three months, he said, increasing the chance that the central bank would cut reserve ratios to encourage more lending.
Sheng told the briefing that steel output had rebounded in April and May as prices rose.
“We need to pay high attention to the situation. The removal of overcapacity is indeed a very arduous task,” he said.


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