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China's manufacturing are reviving, but sluggish consumer demand indicates a sluggish economic recovery

Image: Reuters Berita 24 English - China's economy showed signs of rebound in May after a drop in April, as industrial production unexpe...

Image: Reuters

Berita 24 English - China's economy showed signs of rebound in May after a drop in April, as industrial production unexpectedly increased, but consumption remained poor, underscoring authorities' dilemma with the ongoing drag from severe COVID controls.

The data, on the other hand, shows a way to resurrect development in the world's second-largest economy after firms and consumers were hit hard by complete or partial lockdowns in dozens of cities in March and April, including a lengthy stoppage in Shanghai's commercial centre.

The National Bureau of Statistics (NBS) reported on Wednesday that industrial output increased 0.7 percent in May after declining 2.9 percent in April. According to a Reuters poll, economists predicted a 0.7 percent dip.

The loosening of COVID restrictions and robust worldwide demand fueled the industrial sector's growth. As factories reopened and logistics bottlenecks were resolved, China's exports increased by double digits in May, exceeding expectations.

The mining industry led the way with a 7.0 percent increase in yearly output in May, while the manufacturing industry only managed a 0.1 percent increase, largely due to a 108.3 percent increase in new energy vehicle production year over year.

"Activity data in May offers a picture of economic recovery, but only a sluggish one," said Iris Pang, ING's Chief China Economist.

"The government is likely to respond to this economic weakness by providing additional fiscal assistance," Pang predicted.

In contrast to a relatively muted session for most other Asian share markets, Chinese equities jumped after the figures were released, with mainland China's bluechips up 1.8 percent and Hong Kong shares up 1.4 percent.

A representative for the National Bureau of Statistics, Fu Linghui, told a press conference that he expects the recovery to improve further in June as a result of policy support.

"The international situation is difficult and severe," he said, stressing the outlook's hazards.

"Our domestic recovery is still in its early stages, with key indicators growing at low levels," Fu explained.


This caution was reflected in consumption data, which remained poor as shoppers in Shanghai and other cities were confined to their homes. Retail sales fell 6.7 percent in May compared to the same month a year ago, following an 11.1 percent drop in April.

Due to increased expenditure on essential items such as cereals, edible oils, food and beverages, they were marginally better than the forecasted 7.1 percent drop.

"We shouldn't get too excited about consumer spending because the recovery has been gradual. As a result of repeated COVID breakouts, slower income growth, and a cautious outlook for the future, there will not be any vengeance spending, as some had predicted "Zhongyuan Bank's top economist, Wang Jun, stated.

Sales in the catering industry, which is particularly vulnerable to COVID restrictions, fell 21.1 percent in May, compared to 22.7 percent in April.

Fixed asset investment, a key economic driver that policymakers believed would help the economy, increased by 6.2 percent in the first five months, topping expectations of 6.0 percent but slowing from a 6.8 percent increase in the previous four months.

Property sales in China slowed in May, indicating improved buyer mood following a flurry of relaxing regulatory measures implemented by cities around the country to increase demand. Shares of Chinese developers soared as a result of the news.

However, employment remained a major challenge. The national unemployment rate declined to 5.9% in May from 6.1 percent in April, but it remains over the government's aim of below 5.5 percent by 2022.

In instance, the jobless rate in 31 large cities surveyed increased to 6.9%, the highest level on record. With a record number of graduates entering the workforce this summer, some economists believe that employment may worsen before it improves.

The central bank held its medium-term policy rate unchanged for the sixth month in a row on Wednesday, in line with market forecasts.

Although analysts predict the stated GDP target of approximately 5.5 percent for this year will be difficult to attain without abandoning the zero-COVID plan, China's cabinet recently unveiled a broad package of economic support measures.


Under the strict COVID policy, there is also a risk of further lockdowns. As cases linked to a 24-hour bar mounted, authorities in Beijing warned that the city of 22 million people was in a "race against time" to deal with its most catastrophic outbreak since the pandemic began.

After emerging from a two-month lockdown, Shanghai is still dealing with residual COVID instances.

Analysts fear that any subsequent lockdowns and supply chain disruption threats associated with potential COVID outbreaks could stifle the economy's recovery.

"The short-term trend of recovery in June is becoming apparent," said Wang of Zhongyuan Bank. "However, the economy is still a long way from normal operations."

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