China's factory output growth rebounded more than expected in May alongside stronger expansion in credit and consumer spending, bolstering evidence that the world's third-largest economy is on the path to recovery.
The figures, which round out a batch of monthly data that has mostly surprised on the upside, suggest that the government's huge stimulus spending and tax breaks to encourage purchases of everything from cars to home appliances are helping to offset continued weakness in exports.
The acceleration in annual industrial production growth, to an eight-month high of 8.9 per cent from 7.3 per cent in April, beat economists' forecasts of 7.5 per cent but was in line with a figure reported earlier by two Chinese newspapers.
Retail sales grew by 15.2 per cent in the year to May, also topping forecasts and up from growth of 14.8 per cent in April.
Together with the uptick in new domestic-currency lending in May, to 664.5 billion yuan ($97.3 billion) compared with 592 billion yuan in April, the data paints a picture of an economy pulling up from a bottom.
“The worst is over for the Chinese economy,” said Hao Daming, senior analyst with Galaxy Securities in Beijing.
“The pace of destocking in the past three months has been very rapid. Now China has almost reached the end of the destocking process.”
Asian shares moved towards new highs for the year on Friday, buoyed in part by the stronger-than-expected data, which helped add to hopes that the worst is over for the global economy.
owever, the National Bureau of Statistics said that a low base of comparison due to the massive earthquake that hit southwest China in May 2008 was responsible for 0.6 percentage points of the annual gain in industrial output.
The stronger-than-expected production growth is due mainly to policy-driven investment, but other positive signs include a rebound in property investment and resilience in consumption, said Qing Wang with Morgan Stanley in Hong Kong.
The government has been frontloading a 4 trillion yuan ($585 billion) stimulus package focused on infrastructure investment, driving annual growth in fixed-asset investment in the first five months up to 32.9 per cent.
“We expect the economy to accelerate in the remainder of the year because currently we see policy-driven investment growth, but at the same time we expect that exports should have bottomed and will gradually improve,” he said.
Reuters