Economy

China May economic data complicate future policymaking

(Xinhua)
Updated: 2010-06-12 11:53

Slower economic growth?

Growth of factory production and fixed-asset investment contracted, illustrated by slower growth of auto sales and a cooldown in the property market, government data showed.

Chinese auto sales in May rose 28.35 percent from a year earlier, but the figure was down 7.5 percentage points from April. The property market saw slower growth in property prices at 12.4 percent in May from April's 12.8 percent, and a decrease of floor space sold due to government tightening measures.

Moody's Analytics said in a note that reduced bank lending was crimping business investment, while infrastructure investment was starting to ease as government projects were completed.

"With this trend in place and Chinese authorities actively working to cool growth amid emerging inflation pressures, fixed investment is expected to play a smaller part as a driver of economic activity later this year," according to the note.

It also said slower industrial output growth was in response to gradual tightening measures, adding "this is not necessarily a bad thing. The apparent moderation in industrial production growth will help to contain these inflationary pressures."

The gradual and orderly deceleration to date provides hope that Chinese policymakers would be able to engineer a soft landing and prevent the economy from imploding, it said.

China's domestic demand remained robust, as retail sales, another major driver of the country's economy, quickened its growth to 18.7 percent in May from 18.5 percent in April.

Experts attributed the growth to a series of incentives, including subsidies and tax breaks for home appliances and cars.

Exports also staged a strong growth in May surging 48.5 percent from a year ago in May, faster than the 30.5 percent growth in April.

Policy outlook

China was facing the "most complicated" economic conditions this year and the government would be "very cautious and flexible" in choosing when to withdraw the stimulus policies, Chinese Premier Wen Jiabao said in March.

The country's gross domestic product (GDP) expanded 11.9 percent year-on-year in the first quarter of this year after a growth of 8.7 percent in 2009.

The World Bank forecast GDP growth at 9.5 percent for this year, according to its report published on June 9.

Related readings:  CPI increases 3.1% in May  CPI hits 19-month high but not all see tighter policy  CPI rises 3.1% in May

Zhu Baoliang, chief economist of the State Information Center, said currently the economy was facing "a rather complicated situation and huge uncertainties," so the stimulus policies needed to be retained.

The government has reiterated to continue its proactive fiscal policy and moderately loose monetary policy, and vowed to make proper adjustments according to changes in economic conditions.

The central bank said earlier this month that the foundation of China's economic recovery was not solid and warned that the expanding European sovereign debt crisis and international trade frictions were some of the risks that might have a significant impact on China's economy.

The soft landing of China's economy was particularly important in light of recent international events, including the sovereign debt crisis in Europe and relatively weak labor market in the US, the Moody's Analytics said.

"The global economy will continue to rely on China as it was major growth driver for some time to come," it said.