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Weak Factory, Property Data Highlights China’s Uneven Recovery

Factory output in May was flat, while the property sector continues to weigh on sentiment, despite strong exports and a rise in retail sales

Industrial activity in many Chinese cities has plunged after Covid lockdowns were imposed.
A person looks at cranes in front of Beijing's central business district on October 18, 2021. Industrial activity in China remains flat, although exports and retail sales were up overall in May. File photo: Reuters.


The latest industrial and property sector data revealed in China on Monday weighed on investors’ sentiment.

Factory output in May was disappointing, while the property sector crisis is yet to ease, despite continued efforts to support the sector.

Other sectors were more buoyant – retail sales beat forecasts due to a holiday boost, but the flurry of data was largely downbeat, highlighting the bumpy nature of the country’s economic recovery.


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May industrial output grew 5.6% from a year earlier, National Bureau of Statistics (NBS) data showed, slowing from the 6.7% pace in April and below expectations for a 6.0% increase in a Reuters poll of analysts.

However, retail sales, a gauge of consumption, in May rose 3.7% on year, accelerating from a 2.3% rise in April and marking the quickest growth since February. Analysts had expected a 3.0% expansion due to a five-day public holiday earlier in the month.

“May activity data and our high-frequency trackers for the first half of June suggest significant cross-sector divergences remain in the economy – strong exports and manufacturing activity, relatively stable consumption, and still-depressed property activity,” Goldman Sachs analysts said in a note.

Fixed asset investment rose 4.0% in the first five months of 2024 from the same period a year earlier, versus expectations for a 4.2% rise. It grew 4.2% in the January to April period.

Manufacturing investment in the first five months showed robust growth of 9.6%, underpinned by China’s emphasis for “quality growth” through technological breakthroughs and innovation this year.


Exports lead growth, but concerns over trade tensions

But economists have warned that rising trade tensions with the West over China’s so-called over-capacity may impose more challenges to Chinese solar and electric vehicle producers.

Private sector investment grew 0.1% in January-May, down from 0.3% in the first four months, pointing to still weak confidence among private businesses. By comparison, investment in the state sector jumped 7.1% in the first five months.

Asian share markets were mostly softer following the mixed data with the Chinese blue chip CSI300 index slipping 0.2%.

Exports helped bolster the economy, with steel and aluminium output posting sharp jumps in May.

“Exports drove industrial growth and manufacturing investment significantly, but real estate weakness still hit household consumption and investment,” ZhaoPeng Xing, senior China strategist at ANZ, said.

China’s property market slump, high local government debt and deflationary pressure remain heavy drags on economic activity. The latest figures point to an uneven growth that reinforces calls for more fiscal and monetary policy support.

With banks facing narrowing interest margins and a weakening currency remaining key constraints limiting Beijing’s scope to ease monetary policy, China’s central bank left a key policy rate unchanged as expected on Monday.

“We still see the likelihood of a cut to the Loan Prime Rate (LPR) this month, particularly on the 5-year tenor, as this will help banks to retain households’ mortgage loans,” Zhou Hao, chief economist at Guotai Junan International, said.

But chief China economist at Citi Yu Xiangrong expects a total 20-basis-point policy rate reduction in the second half of this year, but no LPR cut on June 20.


New home prices down further

China’s economy grew a faster-than-expected 5.3% in the first quarter, but analysts say the government’s annual growth target of around 5% is ambitious as the property sector remains in the doldrums.

Property investment fell 10.1% year-on-year in January-May, deepening from a decline of 9.8% in January-April.

New home prices slipped 0.7% in May from April, marking the 11th straight month-on-month decline and steepest drop since October 2014, according to Reuters calculations based on NBS data.

The central bank last month announced a relending programme for affordable housing to accelerate sales of unsold housing stock.

NBS spokesperson Liu Aihua told a media briefing on Monday that the property market is undergoing adjustment and it will take some time for policy measures to kick in.

The property sector, which accounted for around a quarter of economic output before the downturn, has been hit by a regulatory crackdown as well as demographic and broad economic pressures. The government has launched a slew of measures to help homebuyers, such as easing mortgage rules.

But tepid demand at home has kept a lid on consumer prices as confidence remains low in the face of a protracted property sector crisis. New bank lending rebounded far less than expected in May and some key money gauges hit record lows.

The overall job market was steady. The nationwide survey-based jobless rate hit 5.0% in May, the same as that in April.

Beijing has vowed to create more jobs linked to major projects, promote domestic demand and pledged greater fiscal stimulus to shore up growth.


  • Reuters with additional editing by Jim Pollard



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Jim Pollard

Jim Pollard is an Australian journalist based in Thailand since 1999. He worked for News Ltd papers in Sydney, Perth, London and Melbourne before travelling through SE Asia in the late 90s. He was a senior editor at The Nation for 17+ years.


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