Policy makers in Beijing seemed to be breathing a little easier on Monday, and not just because of the city’s astonishingly blue skies this weekend.
An interest rate cut late Thursday had economists forecasting that May’s economic indicators – scheduled for release over the weekend – would be even gloomier than April's results. But the data has not looked as bleak as expected.
Industrial production recovered slightly from last month, to 9.6 per cent year on year, from April’s three-year low of 9.3 per cent. Inflation was also down from April, to an even 3 per cent – a full percentage point below the government’s year-end target of 4 per cent.
Electricity production recovered somewhat, to 2.7 per cent year-on-year, up from 0.7 per cent in April. And both imports and exports were up, after a dismal performance last month. Exports were up 8.7 per cent, year-on-year, fuelled mostly by trade with the U.S., and imports increased 6.7 per cent. Even trade with crisis-ridden Europe, China’s largest trade partner, was up slightly, at 1.3 per cent.
“What’s of note here is that industrial production did not deteriorate. That’s the most important thing. We are not getting any worse,” said Ren Xianfang, senior China economist at IHS Global Insight in Beijing, though she cautioned that May’s data was helped by one extra working day compared to last year.
“Exports was quite a surprise. It was a pretty strong number from the U.S. … The main thing to watch is how long this is going to last,” she said.
Though China’s government has warned it will not attempt another massive stimulus program as it did in 2008, there have been modest moves designed to bring the economy back on track, after efforts to gradually slow China’s growth have overshot their mark.
Last week the People’s Bank of China cut interest rates by 25 basis points, the first such cut since the depth of the financial crisis in fall 2008. Governments have stepped up infrastructure project approvals this spring and some modest rebate programs for consumers, including those to encourage the purchase of appliances, have been reintroduced.
More modest moves may be still to come.
“It’s still early to conclude that the worst is over,” Zhao Jinping, an economist in the State Council’s development research centre, told the state news agency Xinhua.
There are still some worrying signs; industrial production is still near the three-year low, fixed-asset investment is down, and retail sales edged down to 13.8 per cent year on year, though that can be in part accounted for by the slowing of inflation.
However, the slight recovery from last month coupled with the government’s recent moves have injected some optimism into economists’ month-end reports.
“In the next couple of quarters, we expect the government’s policy support, including the push for more infrastructure investment and credit expansion, to have increasingly apparent impact on economic activity,” wrote Wang Tao, economist at UBS, adding that real fixed investment, along with property sales and investment, should also improve in coming months. “Unless the euro zone crisis worsens significantly and China’s exports collapse, we do not expect the government to announce any big stimulus measures.”