China's growth could slow further

China's growth could slow further after data just released showed subdued activity right across the economy in May in the face of sustained global weakness, raising the possibility of interest rate cuts.

Evidence has mounted in recent weeks that China's economy is fast losing growth momentum, with sluggish domestic demand failing to make up for lethargic export sales as the country's main trading partners wrestle with their own slowdowns.

A raft of figures over the weekend added to that evidence, with exports in May posting the lowest growth in almost a year, inflation, growth in bank lending and investment below expectations and factory output and retail sales growing only about the same pace as in previous months.

China's consumer inflation slowed to 2.1 percent, the lowest in three months, while producer prices fell 2.9 percent, the lowest since September.

Separate central bank data showed that Chinese banks lent 667.4 billion yuan (70 billion pounds) in new loans in May, missing market expectations of 850 billion yuan and lower than April's 792.9 billion yuan.

M2 money supply rose 15.8 percent from a year earlier, slightly below a median forecast of 15.9 percent, while total social financing, a broad measure of liquidity, was 1.19 trillion yuan versus 1.75 trillion yuan in April.

Meanwhile, growth in retail sales, fixed-asset investment and industrial output met expectations at 12.9 percent, 20.4 percent and 9.2 percent respectively, but the figures were little changed from the previous month.

On Saturday, official data showed that China's exports posted their lowest growth rate in almost a year in May while imports unexpectedly fell.

China's economy grew at its slowest pace for 13 years in 2012, and it has so far surprised on the downside, bringing warnings from some economists that the country could miss its growth target of 7.5 percent for this year.

The weak data will enable China to keep an easy monetary stance and some see the possibility that the People's Bank of China could cut rates later this year to reduce financing costs for struggling Chinese firms, provided that housing inflation does not flare up.

Most economists agree however that the government will not be looking to a fresh stimulus package along the lines of its 4 trillion yuan one unleashed during the global crisis in 2008.

That package sparked a lending boom that fuelled a property bubble and left local governments under a pile of debt.

The new leadership is keen to push reform of the economic structure rather than just throw money at the existing one.

Colin Stevens

Share this article: