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© Reuters. FILE PHOTO: employees work on a drilling machine production line at a Zhangjiakou plant
By Stella Qiu and Kevin Yao
BEIJING (Reuters) – The United States has increased trade pressure on the Chinese economy in May: growth in industrial production has unexpectedly slowed, reaching its lowest point in more than 17 years and the cooling of investments, highlighting the need for an increased stimulus.
Despite the many support measures taken since last year, the Chinese economy is still struggling to recover and investors fear a longer and more expensive trade war between the two largest economies in the world, likely to trigger a recession World.
Industrial production rose 5.0% in May from the previous year, according to data from the National Bureau of Statistics released Friday, missing badysts' expectations by 5.5% and significantly lower than those of 5, 4% of April.
Reading was the weakest since the beginning of 2002 and exports were a major drag, showing only marginal growth.
Investment in fixed badets also grew less than expected, reinforcing expectations that Beijing will soon have more growth in place.
Chinese Vice Premier Liu He announced additional stimulus measures on Thursday as the trade dispute between China and China intensified, calling on regulators to redouble efforts to boost trade. economy and claiming that Beijing has many political tools.
"Fiscal policy measures could be strengthened and monetary policy should be relaxed further and in a more targeted way," said Wang Jun, chief economist at Zhongyuan Bank.
"It is necessary to reduce reserve requirement ratios (RRR), but we should be a bit cautious in reducing benchmark interest rates."
Real estate investments, a key economic driver, also showed signs of fatigue, with construction starting to slow significantly and real estate sales falling the most since October 2017.
"The slowdown in the real estate sector is worrying, we really need to monitor its negative impact on growth," ANZ economists said in a note to customers, bringing down its growth forecast for 2019 for China to 6, 2% and 6% for 2020.
ANZ expects the central bank to reduce banks' reserve requirement ratios (RRRs) by an additional 100 basis points this year and the 7-day PST rate by 5 basis points in the third quarter.
The People 's Bank of China (PBOC) has already reduced the RRR six times since the beginning of 2018 to free up more money for banks to lend. It has also injected large amounts of liquidity into the financial system and guided short-term interest rates downward.
However, despite deteriorating trade prospects, Chinese observers seem divided on whether the central bank will lower its key rates, as it has done repeatedly in past recessions.
Analysts say policymakers are worried that more aggressive easing measures will fuel debt risks and put additional pressure on the yuan, which weakens to the psychologically important level. $ 7 per dollar, last observed in the global financial crisis.
Beijing has relied more on fiscal stimulus to overcome the latest slowdown, including hundreds of billions of dollars in infrastructure spending and tax cuts for businesses.
However, Friday's data indicates that domestic demand remains sluggish, adding to weaker-than-expected data on last week's imports and bank lending and factory surveys in May. Electricity production last month increased only 0.2%.
Analysts say China is preparing for a protracted trade dispute after both parties raised their tariffs on each other last month and US President Donald Trump threatened to do more.
However, some investors still hope that Trump will meet with his Chinese counterpart Xi Jinping at the G20 summit later this month and at least agree to suspend further escalation, similar to a December G20 truce. in Argentina.
INVESTMENT
The latest readings on the Chinese economy have also shown that investment growth in fixed capital has slowed to stand at 5.6% in January-May compared to the same period of the year. Previous year. Analysts were expecting it to remain unchanged from 6.1% over the first four months of the year.
Private sector capital investment, which accounts for about 60% of total investment in China, has also lost momentum. It increased by 5.3%, against 5.5% in the first four months of the year.
The PBOC has repeatedly urged state-controlled banks to keep their loans at lower interest rates for small private companies with restricted funds, even if they faced short-term financial difficulties, but average rates for businesses and buyers edged up in the first quarter. .
Infrastructure investment increased 4.0%, down from 4.4%.
While construction resumed as Beijing increased spending on road, rail and port projects, some badysts were baffled by the slower than expected response.
On Monday, China announced measures to give local governments greater funding flexibility for special bonds so that they can increase infrastructure spending.
Real estate investments rose 9.5% in May, the slowest pace recorded so far this year.
RETAIL
Retail sales resisted the downward trend, up 8.6% in May over the previous year and up from a 7.2% gain in April, which was at its lowest level in 16 years.
Analysts polled by Reuters expected a rebound to 8.1%, but some said it was probably due to higher inflation rather than a shift in consumer confidence.
Earlier this week, the Chinese Automobile Association announced the largest monthly drop in sales in the world's largest vehicle market in May, as the economy slowed down and the provinces applied tougher standards in terms of sales. 'program.
Among the encouraging news, unemployment figures in the country have been stable from April to 5%, although badysts believe that the real unemployment rate is probably much higher.
(For a chart on "China's economic trends", click on http://tmsnrt.rs/2iO9Q6a)
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