China’s Growth in May Seen Enough to Keep Policy Levers Steady

After a bumper March and a disappointing April, economic data for May in China are forecast to show a stable pace of growth, with little impetus to apply fresh policy stimulus.

A record surge in credit in the first quarter already left China’s leadership with little appetite to step on the monetary accelerator further. President Xi Jinping himself highlighted the importance of deleveraging in remarks publicized in May. For now, with car sales accelerating and imports showing signs of improvement, domestic demand appears to be cooperating.

In a reprieve for hard-pressed China economy-watchers, the usual slew of indicators is now scheduled for release Monday, instead of Sunday. The following are highlights of the data on tap. Following the releases, Bloomberg Intelligence will update the monthly gross domestic product tracker.

• Industrial output is estimated to have risen 6 percent in May from a year earlier, according to the median estimate of economists surveyed by Bloomberg, matching the gain for April.
• Retail sales are seen climbing 10.1 percent, also the same as in April.
• Fixed-asset investment, an important gauge of infrastructure spending, is expected to rise 10.4 percent for the five months through May compared with a year earlier, little changed from 10.5 percent in April.

The steady advance in manufacturing, just under official GDP growth rates near 7 percent, masks a wide gap between some industries and regions that are experiencing outright declines in output, and others that are seeing strength.

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In some areas, China’s leadership is actively attempting to cut back excess industrial capacity that built up amid the debt-fueled growth of recent years. The overhang, along with sliding commodity prices, had spurred pronounced deflationary pressures, which are now starting to ease. Government data Thursday showed that producer prices dropped 2.8 percent in May from a year before, the least since late 2014. Consumer prices were up 2 percent.

Trade Picture

Also already released for the month has been trade data, which showed some stabilization in exports in face of muted global economic growth. With the World Bank now anticipating no pick-up in world GDP expansion this year, China will have to rely on domestic demand to secure the leadership’s goal of 6.5 percent to 7 percent for 2016.

A sustained rebound in real-estate investment will help, according to UBS Group AG China economist Wang Tao in Hong Kong. Overall the May data will show "real economic activity stabilizing at a marginally slower pace compared to April," she wrote in a note earlier this month.

"In light of recent policy signals to rein in policy easing expectations, and the recent improvement in Chinese economic data plus April’s robust overall credit impulse, it is clear that the peak in Chinese easing policy momentum is behind us," Wang wrote. She anticipated reviewing the policy outlook in the wake of second-quarter data and a gathering of top policy makers in July.

Credit data for May, which are due some time by mid-June -- are forecast to show a modest pick-up from April, but nothing like March’s lending spree.

• Aggregate finance is forecast to climb by 1 trillion yuan ($152 billion)
• New yuan loans are seen at 750 billion yuan
  
  

Credit growth likely "stayed solid," said Harrison Hu, chief greater China economist at Royal Bank of Scotland Plc in Singapore.

"With the economy running on the ideal ‘L-shaped’ course, policy makers will likely stay on hold, tapering demand stimulus on the one hand, while maintaining fiscal and liquidity buffers on the other hand," Hu wrote in a recent report previewing the May data. "We think China growth faces balanced risk at the current stage."

--With assistance from Cynthia Li and Ailing Tan To contact the reporter on this story: Malcolm Scott in Hong Kong at mscott23@bloomberg.net. To contact the editors responsible for this story: Malcolm Scott at mscott23@bloomberg.net, Christopher Anstey at canstey@bloomberg.net, Daniel Ten Kate