MercoPress. South Atlantic News Agency

Chinese manufactory recovery for second straight month but still weaker than expected

Industrial output growth quickened to 4.4% in May from a year earlier, the highest reading since December, official data showed on Monday

China's factories stepped up production for a second straight month in May, as the country shook off the economic torpor of the coronavirus, although the weaker-than-expected gain suggested the recovery remained fragile.

Patchy data on Monday also showed sustained contractions in retail sales and investment, a sign many sectors were still struggling with the effects of heavy shutdowns across the world's second-largest economy earlier this year.

Global leaders are closely watching China to see how long it takes to get back on its feet as they begin to relax their own stringent anti-virus measures and reboot their economies.

Analysts say signs of improvement continue to be seen in China ranging from steel production and car sales to more lights being turned on in industrial parks. However, they warn it could take many months for broader activity to return to pre-crisis levels.

“Industrial production is on the whole getting better, but there are still quite a few difficulties and uncertainties,” said Jiang Yuan, an official at the National Bureau of Statistics in a statement.

Industrial output growth quickened to 4.4per cent in May from a year earlier, the highest reading since December, official data showed on Monday. But a collapse in export orders amid global lockdowns has left factories more reliant on domestic demand, which is recovering at a more sluggish pace.

Retail sales fell for a fourth straight month. While the 2.8per cent drop was smaller than the 7.5per cent slump in April, it was larger than the 2.0per cent fall tipped by analysts. Heavy job losses and fears of a second wave of infections have kept consumers cautious.

“There are still restrictions in some demand areas, people remain worried and not many are traveling or going to cinemas, plus there are some virus flare-ups, which will have some impact on consumption,” said Tang Jianwei, senior economist at Bank of Communications in Shanghai.

Fixed asset investment fell 6.3per cent in January-May from the same period last year, compared with a forecast 5.9per cent fall and a 10.3per cent decline in the first four months of the year.

As in past downturns, Beijing is banking on higher infrastructure spending to lead a recovery, and steel mills have cranked up furnaces to over 92per cent of capacity.

Private sector fixed-asset investment, which accounts for 60per cent of total investment, fell 9.6per cent in January-May, compared with a 13.3per cent decline in the first four months of the year.

Other data showed real estate investment fell 0.3per cent in January-May from a year earlier, far less than in previous months.

China's gross domestic product shrank 6.8per cent in the first quarter, the first contraction on record. Highlighting the uncertain outlook, the government did not set a GDP growth target at its annual parliament gathering in May, the first time in nearly two decades it has not done so.

Some analysts saw May's factory data pointing to a more optimistic outlook than previously feared. Bank of Communications' Tang now expects China's GDP to return to modest growth in the second quarter, helped by the recovery in property investment.

However, others still see risks as fragile employment weighs on consumption. ING economists maintained their forecasts for GDP to fall 3.1per cent in the second quarter and 1.5per cent in 2020.

“We believe that the unstable job market and healthcare concerns are the main factors slowing down the recovery,” said ING Chief Economist Greater China Iris Pang. “This means that even during the long holiday month of May, people were still spending carefully.”