China’s economy showed signs of recovery in May, but consumers are cautious | Business and Business News

China’s economy showed signs of recovery in May after collapsing the previous month as industrial production rose unexpectedly. But consumption was still weak, underscoring the challenge for policymakers amid the ongoing burden of strict COVID restrictions.

But the data offers a path to reviving growth in the world’s second-largest economy after full or partial lockdowns in dozens of cities in March and April, including a protracted shutdown in commercial hub Shanghai, hit businesses and consumers.

Industrial production rose 0.7 percent year on year in May after falling 2.9 percent in April, data from the National Bureau of Statistics (NBS) showed on Wednesday. In comparison, analysts in a survey by the Reuters news agency expected a decline of 0.7 percent.

The uptrend in the industrial sector was underpinned by the easing of COVID restrictions and strong global demand. China’s exports grew double-digits in May, shattering expectations as factories restarted and logistical problems eased.

The mining sector led the way in May with production up 7 percent year-on-year, while manufacturing posted meager 0.1 percent growth, mostly driven by production of new energy vehicles, which rose 108.3 percent year-on-year gained.

“Overall, our country’s economy has overcome the negative impact of COVID [in May] and showed recovery momentum,” NBS spokesman Fu Linghui told a news conference, adding that he expects the revival to improve further amid political support in June.

“However, the international environment remains complex and difficult, with greater external uncertainties. Our domestic recovery is still in its infancy with key indicators growing at low levels. The foundations for recovery have yet to be consolidated.”

Retail sales fell

That caution was underscored by consumption data, which remained weak as shoppers in Shanghai and other cities were confined to their homes. Retail sales in May fell another 6.7 percent year-on-year, on top of an 11.1 percent drop in the previous month.

They were slightly better than the forecast 7.1 percent drop due to increased spending on staples such as grains, oils and food and beverages.

Industry data showed that China sold 1.37 million passenger cars last month, down 17.3 percent from a year earlier, narrowing April’s 35.7 percent drop.

Fixed investment, a key indicator tracked by policymakers to prop up the economy, rose 6.2 percent in the first five months, compared with an expected 6 percent rise and a 6.8 percent gain in the first four months.

China’s home sales declined more slowly in May, separate official data showed on Wednesday, helped by a raft of policy easing measures to boost demand amid tight COVID-19 restrictions.

The government has accelerated infrastructure spending to boost investment. China’s cabinet has also announced a package of 33 measures covering fiscal, financial, investment and industrial policies to revive its pandemic-ravaged economy.

The nationwide survey-based unemployment rate fell to 5.9 percent in May from 6.1 percent in April, still above the government’s 2022 target of below 5.5 percent. In particular, the unemployment rate surveyed in 31 major cities rose to 6.9 percent, the highest on record.

Some economists expect employment to deteriorate before it improves as record numbers of graduates enter the job market over the next three months.

China has set an annual economic growth target of about 5.5 percent for this year, but many economists believe that is increasingly unachievable.

Chinese banks added 1.89 trillion yuan (281 billion) in new loans in May. But 38 percent of new monthly loans were short-term bill financing, suggesting real loan demand remains weak.

The central bank left medium-term interest rates unchanged for the fifth straight month on Wednesday, in line with market expectations.

New lockdown fears are emerging

While the world’s largest producer reported better-than-expected export growth in May, subdued foreign demand due to the Ukraine war and robust manufacturing recovery in Southeast Asian countries are threatening the country’s trade prospects.

Fears of new lockdowns are also high as part of China’s zero-COVID policy.

A week after Shanghai reopened, the local government ordered 15 of the city’s 16 districts to conduct mass testing to stem a surge in cases linked to a hair salon.

Authorities in Beijing warned on Tuesday that the city of 22 million is in a “race against time” to get a grip on its worst outbreak since the pandemic began.

Any potential lockdown and supply chain disruption in future COVID-19 outbreaks could limit the economy’s recovery as Beijing has shown no signs of easing its zero-COVID policy, analysts say.