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POLITICAL ECONOMY
China industrial output slightly weaker in May
by Staff Writers
Beijing (AFP) June 09, 2013


China's industrial output expanded at a slightly slower pace in May while big ticket investment growth eased, the government announced Sunday, the latest signs of weakness in the world's second-largest economy.

Industrial production, which measures output at the country's factories and mines, rose 9.2 percent year-on-year in May, marginally weaker than the 9.3 percent increase in April, the National Bureau of Statistics said.

But the May figure matched the median 9.2 percent gain predicted in a survey of 14 economists by Dow Jones Newswires.

Fixed asset investment -- a key measure of government spending -- increased 20.4 percent from January through May compared to the same period last year, the bureau said, slightly weaker than the 20.6 percent in the first four months of the year.

The figures come amid growing concern over the outlook for China's economy, which grew 7.8 percent in 2012, its worst performance in 13 years.

"The macro data for May have confirmed that the economy is stuck in stagnant growth again after quite a brief rebound," Ren Xianfang, senior economist at IHS Global Insight, wrote in a commentary.

"Demand-side indicators are unanimously weak, with extremely weak exports growth and (a) continued slide of fixed-asset investment growth."

On Saturday, China reported a sharp slowdown in exports in May, while imports unexpectedly dropped, amid weakness in the domestic economy and sluggish demand overseas.

Earlier Sunday, the NBS announced that the consumer price index (CPI) -- a main gauge of inflation -- slowed to 2.1 percent on-year in May, and that prices at the producer level extended their decline.

The producer price index (PPI) -- which measure the costs of goods as they leave factories and is seen as a leading indicator of price trends -- fell 2.9 percent compared with a drop of 2.6 percent in April, the NBS said.

"The latest PPI data indicate deflation has deepened," Ren wrote, describing falling prices at the industrial level as "poisonous" for the economy because "it hurts business profitability, damages balance sheets and thus stunts expansion".

In April, the government announced a surprisingly weak growth in gross domestic product (GDP) of 7.7 percent for the first quarter, surprising analysts who had expected growth to accelerate in 2013 after showing strength at the end of last year.

Other recent indicators have raised alarm bells. A survey by British banking giant HSBC showed China's manufacturing activity measured 49.2 in May, an eight-month low.

The government's own survey of manufacturing activity for May, however, was more optimistic, unexpectedly rebounding to 50.8 from 50.6 the month before, according to the NBS.

The private and government purchasing managers' index (PMI) surveys of manufacturing are widely watched indicators of the health of the Chinese economy. Readings above 50 indicate expansion while anything below points to contraction.

In one potential bright spot, the NBS also announced Sunday that retail sales, China's main gauge of consumer spending, managed a marginal acceleration in May.

Retail sales rose 12.9 percent year-on-year in May, the NBS said,, slightly higher than April's 12.8 percent gain.

China's leaders have repeatedly vowed to retool the country's economic model to emphasise consumer demand as the key growth driver rather than investment and exports.

The government's economic growth target for 2013 is 7.5 percent, the same as last year's.

Overall, however, economists saw the latest figures as worrying.

"This set of data casts doubt on the consensus view that growth will rebound this year," Zhang Zhiwei, economist at Nomura International in Hong Kong, wrote in a note.

ANZ economists Liu Li-Gang and Zhou Hao revised down their forecast for economic expansion this year to 7.6 percent from their previous 7.8 percent and reiterated their view that authorities will likely cut China's key interest rate.

"As growth slows further with little inflationary pressure, we believe the monetary policy stance will have to change to support growth," they said in a report.

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