May’s data shows early signs of economic rebalancing
China’s economic supply-demand gap narrowed slightly in May.
Per Monday’s data, released by the stats bureau (NBS):
- Industrial value-added (IVA) grew 5.6% y/y in May, down from 6.7% growth the previous month
- Fixed asset investment (FAI) increased 3.4% y/y, down from 3.5% growth in April
- Retail sales increased 3.7% y/y, up from April’s 2.3% growth
Business activity is slowing.
- On a seasonally adjusted month-on-month basis, IVA only grew by 0.3%, down from 1% m/m growth in April.
- FAI was down 0.04% m/m.
However, it’s not all doom and gloom for China’s supply side.
- Private sector IVA increased 5.9% y/y, outpacing the state sector for the second consecutive month.
- Non-property related FAI held up strongly, with investment in manufacturing and infrastructure growing approximately 9% and 8% y/y respectively, slightly down from the previous month.
On a month-on-month basis, retail sales increased by 0.51% – the fastest m/m growth rate since October 2023.
Get smart: Commentators will lament the slowdown in industrial output and FAI, but we think they’re missing the forest for the trees.
- China needs to reduce its reliance on supply-side growth drivers – this structural readjustment necessitates a slowdown in IVA and FAI growth, and a concurrent increase in household demand.
- May’s print suggests the first part of this equation is occurring – but we’re still waiting for the rebound in household demand.