China’s economy appears to have hit a significant speed hump, with a number of key indicators across the industrial, construction and retail sectors slowing to either multi-year, multi-decade or record lows.
Fixed asset investment − a proxy for infrastructure spending − fell to 6.1 per cent growth in the first five months of the year, down from 7 per cent in April and below market forecasts.
It is the slowest pace of expansion since the National Bureau of Statistics started the series in 1996.
Industrial production slowed to a 22-year low, growing by 6.8 per cent over the year to May.
Retail sales also disappointed, tumbling from almost 10 per cent growth in April to 8.5 per cent in May, its slowest pace in around 15 years.
Rates kept on hold as economy cools
The slower-than-expected growth is reflected in the surprise decision from China’s central bank not to raise its key interest rates in the wake of the US Federal Reserve’s move overnight.
Traditionally the People’s Bank of China has moved its rates roughly in line with the US to keep pressure off the yuan and head-off capital outflows.
However, after a brighter-than-expected start to the year, China’s second quarter appears to be losing momentum.
Economists at global investment bank Rabobank said investment growth “was all shockingly weak by Chinese standards”.
“Get ready for headlines talking about Chinese deleveraging hitting the economy — except it isn’t even deleveraging yet!” the Rabobank team was quoted by Reuters.
“China is walking more of a tightrope than markets believe − and the data underline that issue clearly.”
Likely to slow further
Capital Economics’ Chang Liu said the figures point to a softening of domestic demand in coming months.
“The boost to industrial output growth from the removal of the government’s pollution controls at the end of March has now faded,” Mr Liu said.
“With headwinds from slower credit growth increasing, economic growth looks set to continue to weaken in the second half of 2018.”
Property investment growth slowed to 9.8 per cent in May from 10.2 per cent in April.
Both government and private sector construction spending noticeably slowed in May.
However, real estate activity avoided the slow down.
“Floor space rose the most in two years even as sales growth is being held back by slower mortgage lending and tighter property controls,” Mr Liu said.