China's central bank kept a key lending rate unchanged, opting not to loosen credit despite signs of weakness in manufacturing and real estate sectors. May data showed factory output fell 5.6%, property investments dropped 10%, and home sales plunged 30.5%. The real estate slump followed a crackdown on excessive borrowing by developers. COVID-19 disruptions and falling home prices dampened consumer spending. However, authorities remain optimistic, citing progress in retail sales, high-tech investments, and an appliance recycling program. Online sales rose 11.5%, and vehicle sales climbed 8.3%. While acknowledging challenges, officials pledged more policies to support the ailing real estate market.
The Chinese economy continues to suffer with challenges in its manufacturing and real estate sectors, as evidenced by the latest data released for May. Despite this, the central bank refrained from loosening credit by keeping the key lending rate for 1-year medium-term lending facility loans unchanged at 2.5%. This decision aligns with Beijing's focus on channeling spending towards high-priority areas like high-tech industries rather than relying on interest rate cuts. The manufacturing sector's output fell by 5.6% year-on-year in May, a slight improvement from April's 6.7% decline. However, analysts note that the impact of more working days this year compared to the previous year may have influenced these figures.
The real estate sector remains a significant concern, with property investments declining by 10% year-on-year and home sales plummeting by 30.5%. This suggests that the measures implemented to revive the struggling real estate market have yet to take full effect. Home prices in major cities like Beijing and Shanghai experienced a 3.2% drop, a consequence of the crackdown on excessive borrowing by property developers several years ago, which led to defaults and delays in delivering pre-sold apartments. This ripple effect has impacted contractors, suppliers, and the broader housing market. Lynn Song, the chief economist for Greater China at ING Economics, expressed concern over the disappointing data, noting that the policy support package introduced in May has not translated into a stabilization of housing prices or a slower decline.
The COVID-19 pandemic, coupled with declining home values-a traditional investment for many Chinese families has dampened consumer confidence and spending power, further hindering economic recovery. Despite these challenges, Liu Aihua, the spokesperson for the National Bureau of Statistics, remains optimistic about the fundamentals of economic recovery and long-term improvement. She highlighted rising retail sales and investments in high-tech industries as positive signs of progress.
Additionally, a government program encouraging the recycling of old appliances and the transition to electric vehicles has helped revive consumer spending. Online sales, accounting for approximately 25% of total retail sales, rose by 11.5% in May, while household appliances and audio-visual goods sales increased by nearly 13%. The automotive sector also showed signs of recovery, with vehicle sales climbing by 8.3% year-on-year in the January-May period, according to the China Association of Automobile Manufacturers.
Liu acknowledged the need for further improvement in consumer confidence and purchasing power but emphasized the favorable factors supporting the continued growth of the consumer market. She also indicated that additional policies to support the ailing real estate market would be forthcoming, following recent initiatives such as reduced mortgage rates and lower down-payment requirements for property purchases, aimed at ensuring homebuyers receive the properties they have purchased. While the implementation time for some policies has been relatively short, Liu expressed confidence in their effectiveness, underscoring the government's commitment to addressing the economic challenges faced by the manufacturing and real estate sectors.
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