MNI ANALYSIS: China's Slower Invst and Spending Cloud Outlook

--Lower-than-expected performance point to 2H slowdown

--Loosening policies more likely to avoid stalling growth

     BEIJING (MNI) - China's major economic indicators for May failed to meet

expectations, with investment and consumer spending both posting sharp

slowdowns, casting a negative outlook for the second half of the year. 

     As the disappointing results could be partly attributed to lower credit

growth and a tighter funding environment, the poor economic data further raised

the stakes that monetary and credit policies need to be relaxed to avoid a

further slowdown.

     Fixed-asset investment (FAI) increased 6.1% y/y in the first five months,

below the 6.9% projected by MNI's survey of economists, and lower than the 7.0%

growth during Jan-Apr 2018 and the 8.6% for Jan-May last year. 

     Lower FAI is mainly caused by slowing infrastructure investment, which

slowed to 9.4% from 12.4% in Jan-Apr and half of the 20.9% seen in the first

five months of last year. 

     --LOWER INFRASTRUCTURE NEEDS

     The slower growth may be attributed to the lower need for infrastructure

spending after strong investment in the past months and the campaign to control

local government debt. That will continue to exert pressure on future

infrastructure investment growth, said Mao Shengyong, a spokesman at the

National Bureau of Statistics, said at the data release.

     FAI by the private sector rose 8.1% y/y during Jan-May, lower than 8.4%

during Jan-Apr period while still higher than the overall FAI growth.

     Retail sales rose 8.5% y/y in May, down from 9.4% in April and 10.7% last

May. That fell short of the 9.5% median expected by the MNI survey.

     Lower retail sales growth was caused by holiday effects, as the Dragon Boat

Festival fell in May last year while this year it comes in June. That shaved

more than one percentage point off May's retail sales growth, said Mao. A

scheduled reduction in tariffs on auto and daily goods, which will take effect

on July 1, also caused some consumers to postpone their purchases, moderating

retail sales growth, Mao said.

     In evidence, auto sales shrunk 1.0% y/y in May, lower than 3.5% y/y growth

in April and 7.0% growth last May.

     --BRIGHT SPOT

     Industrial output was a brighter spot, gaining 6.8% y/y, as seen in MNI's

survey median, while down from 7.0% in April but higher than 6.5% last May.

     Production in electricity, heating, gas, and water surged 12.2% y/y in May,

above the 8.8% growth rate in April and the 6.4% growth rate last May.

     Manufacturing output increased 6.6% y/y in May, lower than 7.4% in April

and 6.9% in May 2017.

     The national urban unemployment rate was 4.8% in May, down from 4.9% in

April and also lower than 4.9% last May, well below the 5.5% target set by

Premier Li Keqiang at the beginning of this year.

--MNI Beijing Bureau; +86 10 85325998; email: he.wei@marketnews.com

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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