Chinese economy improves mildly

 China’s economy improved mildly in May as retail sales and industrial production edged up although investment slowed slightly, the National Bureau of Statistics said yesterday.
Retail sales rose 12.5 percent from a year earlier to 2.12 trillion yuan (US$341 billion) last month. The pace accelerated from the 11.9 percent gain a month earlier. Industrial production added 8.8 percent, slightly faster than April’s 8.7 percent.
Fixed-asset investment growth, however, slowed to 17.2 percent in the first five months from the 17.3 percent rise in the January-April period.
“China’s economy is stabilizing,” said Li Maoyu, an analyst at Changjiang Securities Co. “After the pro-growth policies have deepened further, there will be more signs of recovery.”
Earlier this week, the People’s Bank of China said it will further cut the reserve requirement ratio for targeted banks, the second time it has done so in two months as it bids to support small companies and agriculture.
Seen as part of a mini-stimulus package, the other steps included tax breaks and quicker government spending in railway construction as growth was hit by a property slowdown.
Chang Jian, an economist at Barclays, expects further monetary easing because the central government is serious about achieving the 7.5 percent growth target for 2014.
China’s gross domestic product in the first quarter grew 7.4 percent, the slowest in six quarters and below the government goal.
But Chang suggested that a cut in benchmark interest rates would be a better policy option than the “blanket” reserve requirement ratio cuts.
“Lowering interest rates will help reduce the debt burden and cut financing costs given the economy’s high leverage and debt, elevated borrowing costs, and weakening demand,” Chang said.
China’s Consumer Price Index, the main gauge of inflation, rose 2.5 percent in May, the most in four months. Some analysts, however, see the inflationary outlook to be mild, allowing room to relax policies further.
Other data for May showed new bank lending and money supply rose faster than expected, while total fiscal spending by the central and local governments surged nearly 25 percent in May from a year earlier.
Some analysts expect the central bank to lower reserve requirements for banks across the country in coming months.