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The latest data out of China is painting a mixed picture of the world’s second-largest economy. While retail sales rose faster than expected in May, industrial production fell following an increase in the previous month, and the property market continued to slump despite a supportive policy push.
New home prices in first-tier cities fell by 0.7% in May compared to April and 3.2% year-on-year. Property investment fell by 10.1% in the first five months of the year.
At the beginning of May, Beijing announced a policy change to rescue the indebted property sector. Liu Aihua, a spokeswoman for the National Bureau of Statistics (NBS), acknowledged that the real estate market is still in the process of adjustment. “It will take some time for the policy effects to be released,” she said. “The current external environment is complex and severe, and domestic effective demand is still insufficient.”
“The Politburo’s announcement did not mention any support measures for the private sector and consumption-led growth. Therefore, we believe that rescuing the property market is the key measure to restore dwindling public confidence and thus stimulate consumer spending,” said Chi Lo, Senior Market Strategist, Asia Pacific, at BNP Paribas Asset Management.
“However, in order to improve the impact of the rescue package, we believe that Beijing should loosen monetary and fiscal policy even further,” Lo added.
China’s retail sales surprised on the upside with 3.7% growth in May, but it was still the third-lowest reading since August 2023.
“Unconvincing onshore activity momentum outside of the ‘new’ industries in May suggests that the recent step-up in property and fiscal stimulus has not (yet) improved consumer and investor sentiment,” Louise Loo, Lead Economist at Oxford Economics, wrote in a note.
Loo concluded there are “no clear growth drivers amid the noisy May data” in China.
ING economists said the disappointing data might “ring some alarm bells” and expect the property sector to remain a headwind on growth this year. China is targeting economic growth of around 5% this year.
