China’s factory output and retail sales remained weak last month, official data showed yesterday, with tepid demand and lingering COVID-19 restrictions putting a damper on growth in the world’s second-largest economy.
The government is persisting with a “zero COVID” strategy to stamp out clusters as they emerge, but this has placed companies and consumers at the mercy of snap, economically damaging lockdowns.
The American Chamber of Commerce (AmCham) yesterday said that Shanghai’s lengthy COVID-19 lockdown pushed one-quarter of US firms in the city to cut investment plans and nearly all to drop revenue forecasts.
Photo: AFP
Retail sales sank 6.7 percent year-on-year, the Chinese National Bureau of Statistics said, although that was an improvement from April’s 11.1 percent drop.
The figure was also slightly better than forecasts from analysts polled by Bloomberg.
“In May, our economy gradually overcame the adverse impact of the pandemic,” National Bureau of Statistics spokesman Fu Linghui (傅令輝) told reporters. “But we also have to see that the international environment has become more complex and severe, and the domestic economic recovery still faces many difficulties and challenges.”
It was the third consecutive month of contraction in retail sales, suggesting that nervous consumers are tightening their purse strings with the persistent threat of COVID-19 lockdowns.
However, industrial production was up 0.7 percent after falling 2.9 percent in April, while the urban unemployment rate ticked down to 5.9 percent.
Shanghai, China’s most populous city, this month started emerging from a grueling two-month lockdown, providing a boost to economic sentiment.
Tommy Wu (胡東安), lead China economist at Oxford Economics, speculated that the “worst of lockdowns is probably behind us.”
However, he added that it will be “difficult for household consumption to recover strongly” as long as China’s “zero COVID” strategy remains in place.
Concerns are mounting over the trend in unemployment, as millions of students graduate in the summer, Pinpoint Asset Management Ltd (保銀私募基金管理) chief economist Zhang Zhiwei (張智威) said.
Unemployment among rural migrant workers remained elevated, while home sales in the first five months dropped 34.5 percent, data showed.
Observers remain cautious about the government’s reluctance to transition away from the “zero COVID” strategy, despite fine-tuning.
More than 90 percent of US companies in the metropolis surveyed by AmCham Shanghai have cut their revenue projections for the year, the group said in a report yesterday.
The survey of 133 companies also found that one-quarter were expecting revenue to be more than 20 percent lower than projected.
Nearly 25 percent of companies surveyed have cut investment plans, AmCham Shanghai said.
AmCham said that about one-quarter of manufacturers surveyed were speeding the localization of their China supply chains, while moving production of global goods out of the country.
As of early this month, only 35 percent of the manufacturers polled were operating at full capacity and close to three-quarters of all firms surveyed had yet to enjoy economic support measures since Shanghai’s lockdown.
AmCham Shanghai president Eric Zheng (鄭藝) said the lockdown’s impact on businesses has been “profound.”
“The Shanghai government must act quickly to ensure unhindered supply chains, logistics and worker mobility, and to accelerate the provision of financial support to businesses,” Zheng said.
This week, analysts at Fitch Ratings downgraded China’s growth predictions for the year to 3.7 percent based on the “cautious pace at which pandemic-related restrictions have been eased.”
That would be far below China’s target of about 5.5 percent full-year growth.
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