A fruit vendor takes a nap at a market in Shanghai on Sunday. ( AFP-Yonhap News)
China’s new leaders face a test of their resolve to forgo short-term stimulus for slower, more-sustainable growth after May trade, inflation and lending data trailed estimates, signaling weaker global and domestic demand.
Industrial production rose a less-than-forecast 9.2 percent from a year earlier and factory-gate prices fell for a 15th month, National Bureau of Statistics data showed Sunday in Beijing. Export gains were at a 10-month low and imports dropped after a crackdown on fake trade invoices while fixed-asset investment growth moderated and new yuan loans declined.
The data add pressure on President Xi Jinping and Premier Li Keqiang to shore up growth less than three months into their tenure, after first-quarter expansion unexpectedly slowed. While the figures boost the case for easing monetary policy or approving more spending, the government’s room is limited by rising home prices, financial risks and overcapacity.
“The May data will force China’s leadership and the central bank to rethink growth and inflation ― it seems they were too optimistic about growth and too concerned about inflation,” said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong. “It’s a test for China’s leadership to see whether they are determined to reform.”
The statistics increase odds of an interest-rate cut, and the government can make fiscal policy more “proactive,” said Shen, who previously worked at the European Central Bank.
Chinese financial markets are closed Monday through June 12 for the Dragon Boat Festival holiday.
Li has pledged to reduce the government’s role in the economy and open it up more to private investment. He told provincial leaders June 8 that while growth is still within a reasonable range and employment is stable, “complicated factors” are ahead and must be closely monitored, the official Xinhua News Agency reported.
Analysts are paring growth estimates. A Bloomberg News survey last month showed a median projection of 7.8 percent for the year, down from an 8 percent pace forecast in April. The survey, conducted May 16 to 21, showed one of 27 economists projected a lending-rate reduction by the end of the third quarter.
Australia & New Zealand Banking Group Ltd. Sunday reduced its 2013 growth forecast to 7.6 percent from 7.8 percent and said a quarter percentage-point cut in interest rates may be imminent. Haitong International Securities Co. sees two or three cuts in banks’ reserve requirements, one rate cut and approval of more infrastructure projects in the next several months.
(Bloomberg)