Daily Management Review

Chinese Factory Output In May Misses Market Expectations


Chinese Factory Output In May Misses Market Expectations
Disruptions caused by the Covid-19 pandemic outbreaks in China’s southern export powerhouse of Guangdong likely weighed down on the growth in factory output of the country in May as it slowed down for the third straight month.
Even though growth in retail sales and investment was lower than market expectations, analysts pointed out that the outlook for underlying activity was still quite strong as they noted headline readings remaining highly distorted as the numbers were compared to those from last year when the numbers were low because of the pandemic.
The hit of the Covid-19 pandemic has largely been shaken off by the Chinese economy but officials have pointed out that challenges including soft domestic demand, rising raw material prices and global supply chain disruptions makes the recovery uneven.
Asia’s export-reliant economies have been significantly boosted by the rapid economic recovery of China last year and the rebound of the United States economy this year with Japan posting its biggest growth in 41 years. But broader-based recoveries are being hindered by resurgence of Covid-19 infections and related lockdowns,
According to data released on Wednesday by China’s National Bureau of Statistics, there was a 8.8 per cent year on year growth in May in Chinese industrial production which was lower than the 9 per cent growth in April and lower than the 9 per cent year on year growth forecast of analysts.
A drop of 4 per cent year on year in the output of auto vehicles was specifically noteworthy as the sector had reported a growth of 6.8 per cent in April. One of the factors being attributed to the muted growth in the auto sector is the global chip shortage.
"This is a normal cyclical slowdown after an economic recovery. In a nutshell, we can see the economic rebound is peaking," said Hao Zhou, senior EM economist Asia, Commerzbank. "The extent of the slowdown in the second half is key. So far, it's still normal and there's still room for the fiscal policy to play a part later in the year."
Dampening export orders, higher input costs for factories and stricter environmental restrictions on heavy industry had prompted the market to expect some moderation in May output.
Economists at Nomura said in a note to clients, some key ports were brought to a standstill because of fresh Covid-19 outbreaks in the Pearl River Delta since late May, even though they also believed that it would take a relatively short period of time to bring the current outbreak under control.  
There were also a number of external risks to the economic growth of China, according to Fu Linghui, an NBS official, which included spill-over effects from large stimulus programmes from some countries and the continued rise in Covid-19 infections globally as well as an uneven recovery in the global economy.
There were however some bright spots in May including a 12.4 per cent year on year growth in May in retail sales and a 15.4 per cent year on year growth in fixed asset investment in the first five months of the current year.