China’s economy steadies on government spending

June 14, 2016 2:39 PM (UTC+8)

 

China’s economy seems to be finding a rhythm that should help it meet the government’s targets for the year.

Gross domestic product growth grew 6.9% in May, according to Bloomberg’s monthly tracker, little changed from April and comfortably within the leadership’s annual target for 2016. Updated after the release of monthly data on Monday, the gauge had swung from 6.3% in the first two months of the year to 7.1% in March, when a lending spree juiced growth.

A CRRC worker walks past an unfinished metro train car in the company's Kunming factory, Yunnan province, April 11, 2016. REUTERS/Brenda Goh
A CRRC worker walks past an unfinished metro train car in the company’s Kunming factory, Yunnan province, April 11, 2016. REUTERS/Brenda Goh

The economy was helped by steady factory production and government support, as private investment declined in old-line industries such as coal.

The National Bureau of Statistics reported that in May industrial production rose 6% year over year, matching economists’ estimates, reported. Retail sales climbed 10%, while fixed-asset investment increased 9.6% for the first five months of 2016 — missing all 38 economist forecasts and the slowest pace since 2000.

“Private investment growth continues to fall, but overall it is being offset by public investment,” Hao Hong, chief China strategist at Bocom International Holdings told Bloomberg. “The overall economic environment remains challenging.”

Among the positives, the unemployment rate fell in May, with 1.34 million jobs added in urban areas in the month, bringing the total for new jobs created in 2016 to 5.77 million. On the negative side, private fixed-asset investment slowed to 3.9% for the year to date.

Declining investment by privately owned enterprises especially in the coal and ferrous metals industries drove the slowdown in fixed-asset investment in May, Iris Pang, senior economist for Greater China at Natixis in Hong Kong told Bloomberg.

Despite China’s leaders signaling a desire to rein in debt-fueled stimulus it appears that for the economy to reach the official growth target of at least 6.5% in 2016 it will have to rely on government spending on signature projects like shanty-town development and improving the drainage systems of its cities.

“The main risk here is how to stabilize private investment to curb the downside risk,” Ding Shuang, head of greater China economic research at Standard Chartered in Hong Kong told Bloomberg. “If they want to achieve the growth target in the short run, the only solution could be more public spending because private investment cannot be boosted right away.

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