China's Factories Perk Up, Retail Figures Remain Weak

China's economy showed signs of recovery in May after slumping in the prior month as industrial production rose unexpectedly, but consumption was still weak and underlined the challenge for policymakers amid the effects of strict Covid curbs.

The data, however, provides a path to revitalise growth in the world's second-biggest economy after businesses and consumers were hit hard due to full or partial lockdowns in dozens of cities in March and April, including a protracted shutdown in commercial centre Shanghai.

Industrial output grew 0.7 percent in May from a year earlier, after falling 2.9 percent in April, data from the National Bureau of Statistics (NBS) showed on Wednesday.

The uptick in the industrial sector was underpinned by the easing of Covid curbs and strong global demand. China's exports grew at a double-digit pace in May, shattering expectations, as factories restarted and logistics snags eased.

"Activity data paints an economic recovery picture in May, but only a slow one," said Iris Pang, Chief China economist at ING.

"The government is likely to respond to this economic weakness by delivering more fiscal stimulus," Pang said.

Fu Linghui, a spokesman at NBS, told a press conference that he expects the recovery to improve further in June due to policy support. However, "the international environment is still complex and severe", he said, highlighting the risks to the outlook.

"Our domestic recovery is still at its initial stage with the growth of key indicators at low levels," Fu said.

That caution was underscored in consumption data, which remained weak as shoppers were confined to their homes in Shanghai and other cities. Retail sales slipped another 6.7 percent in May from a year earlier, on top of an 11.1 percent contraction the previous month.

"We should not be overly optimistic about consumption as the recovery has been quite slow. Affected by repeated Covid outbreaks, slower income growth, a cautious view of the future expectations, there will not be a revenge spending, as people have expected," said Wang Jun, chief economist at Zhongyuan Bank. (Reuters)