The economic growth outlook for 2020 has actually been revised upwards but analysts said the new data suggested Beijing was turning to its old-school stimulus playbook of state investment, government debt and construction projects. Consumption remained weak throughout May with retail sales and asset investment shrinking again, according to the National Bureau of Statistics (NBS).
But there were signs of a construction boom approaching in the industrial economy and specific areas of investment.
Output in the manufacturing, mining and utilities sectors grew by 4.4 percent in May compared to a year earlier, the strongest rise since December 2019.
Fixed asset investment growth remained negative at -6.3 percent but there were suggestions traditional investment channels were picking up.
Nomura’s chief China analyst Lu Ting said: “The recovery was mainly driven by a further rise in infrastructure investment growth, which jumped to 10.9 percent year on year in May from 4.8 percent in April.”
Dan Wang from The Economist Intelligence Unit in Beijing said investment was coming from “local government projects such as public medical facilities, city infrastructure, old community renovations, transport, power grids and telecoms”.
He said: “It is better than we thought. We will adjust up our gross domestic product forecast for the year to about two percent, now it is one percent.”
But the decision to throw money at infrastructure projects has created a new wave of public debt.
A total of £150billion worth of local government bonds were issued in May – the highest since monthly records were first released in November 2017 – and almost £110billion of this was for infrastructure projects.
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Sales of excavators shot up by 67.8 percent in May while heavy duty truck sales rose by 61.6 percent.
The data also revealed an 8.6 surge in cement production and 6.2 percent increase in the manufacture of steel products.
Louis Kuijs, a China analyst at Oxford Economics, said: “Some of the current easing is supporting household consumption, but that is a small portion.
“The bulk of stimulus is boosting infrastructure and other investments, including in real estate.”
China’s major share indexes closed down today amid wider losses in other markets in the region sparked growing concerns about the resurgence of the coronavirus outbreak.
At the close, the Shanghai Composite index was down 1.02 percent, while the blue-chip CSI300 index was down 1.2 percent.
MSCI’s Asia ex-Japan stock index was weaker by 2.39 percent while Japan’s Nikkei index closed down 3.47 percent.