MNI: High-tech Focus Won’t Support H2 Growth - Economists

China’s economy continued an unbalanced recovery in May, with economists telling MNI that policymakers' focus on flagship high-tech industrial upgrading may not offset weakness in the private sector and real estate during the second half of the year, as the country targets GDP growth of about 5%.

High-tech industrial fixed-asset investment rose by 12.8% y/y in May, with medical and communication equipment up 18.8% and 16.1%, according to National Bureau of Statistics data on Thursday.

“This months’ robust high-tech growth data shows the government policy to transform China’s industrial base is happening and real,” according to Raymond Yeung, chief Greater China economist at ANZ. “However this remains a medium- to long-term vision and is very sector specific, it's not going to push up the headline macro picture in the second half of the year."

Fu Linghui, spokesperson at the National Bureau of Statistics, told a press conference on Thursday that efforts to develop growth in new energy-related manufacturing industries were beginning to pay off and the trend would continue.

“Premier Li Qiang’s planned visit to Germany shows high-quality development is the priority, but these efforts will take some time before they make a difference," said Serena Zhou, senior China economist at Mizuho.

Despite strong growth in high-tech industries, overall fixed-asset investment grew only 4.0% y/y in May, down 0.7pp on the previous month and the lowest since December 2020.

PRIVATE SECTOR

The private sector showed continued weakness in May’s data, with fixed-asset investment down 0.1% y/y.

“High youth unemployment has been driven by the private sector recovering slowly, which contributes 80% of employment in China,'' Zhou said.

Youth unemployment reached 20.8% in May, the highest since records began and up 0.4pp on the previous month, with overall unemployment remaining at 5.2%. Yeung said although headline unemployment and GDP growth might look acceptable, “worrying private-sector weakness is really showing up in the underlying data”.

According to a note from Golden Credit Rating International, May’s data showed the economic recovery continued a downward momentum from April, with the real-estate sector a concern.

“Stabilising the real-estate industry is a top priority, if recent slowdown in the recovery leads to significant fall in house prices this could endanger the 5% GDP target this year,” Zhou said.

Real-estate, fixed-asset investment fell by 7.2% in May. “The willingness of real-estate development companies to develop new projects is not strong at present,” Fu noted during Thursday’s press conference.

The People’s Bank Of China cut the MLF rate by 10bps as expected on Thursday following May’s subdued inflationary print (See: MNI: Weak Price Data Adds To Rate Pressure On PBOC- Economists - Bonds & Currency News | Market News)