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China’s factories fall off the pace after Covid shuts export hubs

The manufacturing powerhouse saw growth slow at the factory gates, retail sales decelerate and investment slide in what turned out to be an underpowered month for the world’s second biggest economy

People cross a street during morning rush hour in front of the skyline of the central business district in Beijing, China. Photo: Reuters

The manufacturing powerhouse saw growth slow at the factory gates, retail sales decelerate and investment slide in what turned out to be an underpowered month for the world’s second biggest economy

 

Covid outbreaks across some of China’s key ports contributed to a slowdown of the country’s production lines last month.

Growth in China’s factory output fell back for a third straight month in May, with virus spikes in the country’s southern export powerhouse of Guangdong, rising raw material prices and global supply chain disruptions all being blamed.

The Chinese economy has largely shaken off the gloom of the coronavirus-induced slump last year but Beijing has warned the foundations for the recovery are not yet stable.

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Industrial production grew 8.8% in May from a year ago, slower than the 9.8% uptick in April, National Bureau of Statistics data showed on Wednesday. That missed a 9.0% on-year rise forecast by analysts.

Most China watchers had expected some moderation in May output due to softer export orders, higher cost pressures for factories and tighter environmental restrictions on heavy industry. But they said underlying activity still appears solid, even if headline growth figures are heavily distorted by comparisons to the pandemic plunge early last year.

Outbreaks of Covid in the Pearl River Delta since late May brought some key ports to a standstill, economists at Nomura said in a note to clients, though it believes the current spate of infections can be contained.

BUSINESS CONFIDENCE

Retail sales rose 12.4% year-on-year in May, weaker than 13.6% growth expected by analysts and down from the 17.7% jump seen in April. Chinese consumer and business confidence has been picking up thanks to pent-up demand and quickening vaccine rollouts, which are also reviving domestic tourism.

Fixed asset investment increased 15.4% in the first five months from the same period a year earlier, versus a forecast 16.9% rise, slowing from January-April’s 19.9% increase.

SURGING DEMAND

Earlier data for May painted a mixed picture, with export growth easing but imports picking up, fuelled by surging demand and prices for raw materials.

Surging commodities prices pushed China’s producer inflation to its highest level in over 12 years, squeezing profit margins for mid- and downstream firms.

Bank lending unexpectedly rose in May but broader credit growth continued to slow, a trend analysts said could start to weigh on activity in the second half of the year.

 

  • Reporting by Reuters

 

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Sean OMeara

Sean O'Meara is an Editor at Asia Financial. He has been a newspaper man for more than 30 years, working at local, regional and national titles in the UK as a writer, sub-editor, page designer and print editor. A football, cricket and rugby fan, he has a particular interest in sports finance.

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