DOWNBEAT DATA from China has fuelled concerns that the world’s second-largest economy may slip into its worst downturn in years, adding to global jitters over Europe’s woes.
Data released on Saturday showed factory output rose by 9.6 per cent in May from a year ago, which was below forecasts. A rise of 9.9 per cent had been forecast for May.
Fixed-asset investment, the second-biggest driver of China’s economic growth in the first quarter after consumption, climbed 20.1 per cent in the January-to-May period from a year ago. This was just above forecasts for a 20 per cent rise.
Meanwhile, retail sales underperformed expectations. It had been expected to record 14.3 per cent annual growth but instead rose by 13.8 per cent in May from a year earlier.
Despite the slowing economy, the country’s car market was buoyant, with vehicle sales jumping nearly 16 per cent from a year earlier to 1.61 million units. Sales for May in the world’s largest market for new vehicles were sharply higher than earlier in the year.
Total car sales in the first five months inched up 1.7 per cent to 8.02 million units, the China Association of Automobile Manufacturers reported.
Last week saw China’s first interest rate cut since late 2008, when the People’s Bank of China cut the official one-year borrowing rate by 25 basis points to 6.31 per cent, and the one-year deposit rate by a similar amount to 3.25 per cent.
The rate cut comes after comments by leaders about efforts to accelerate growth, including a loose package of stimulus measures and cuts in bank reserves.
The rate move illustrates the weakness of credit growth in the wake of government stimulus calls. It is seen as an important step towards further interest rate liberalisation.
In a research note, UBS analysts said they did not think the move was the “big move” to stimulate growth, but was mainly because growth outlook was poor and corporates were unwilling to borrow and invest when they were battling against falling demand and rising inventories.
Analysts expect 2012 full-year growth of about 8.2 per cent, a rate that would be the envy of any European country but which marks China’s weakest performance since 1999.
Mark Williams, chief Asia economist at Capital Economics, believes the rate cut will be effective in meeting the short-term objective of getting credit and the economy moving.
“There could be no stronger signal that policymakers are focused on growth,” Mr Williams said. “That alone should prompt more activity by the large state-owned sector.”
