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 Fixed-asset investment, a crucial driver of the world's
second-largest economy, rose 11.4 percent in the first five months
of this year from the year-earlier period, missing a Reuters poll
forecast for a 12 percent gain, the same as in April.
Some analysts said China's housing cooldown had crimped new
investment as falling home prices dampened the mood of consumers,
leading them to tighten their belts.
"The data showed the economic situation remains grim," said Li
Huiyong, economist at Shenyin Wanguo Securities in Shanghai.
"Investment is vital for stabilizing growth in the short term and
the poor performance of investment is putting pressure on the
economy. We previously expected second-quarter economic growth to be
7 percent, we now expect growth to slow to 6.8 percent.
Factory output grew 6.1 percent last month compared with the
year-ago period, the National Bureau of Statistics said on Thursday,
slightly higher than analyst forecasts for a 6 percent rise and 5.9
percent in April.
Retail sales grew 10.1 percent in May from the same time last year,
in line with forecasts for 10.1 percent growth and compared with
10.0 percent in April.
The disappointing investment data followed figures earlier this week
that showed China's import growth had slumped more than expected
last month. Persistent weakness in the economy will strengthen calls
that policymakers must do more sooner rather than later to revive
growth.
Mindful that China's economy remains vulnerable to a further
slowdown, Beijing tried to harness as much fiscal support as
possible this week by threatening to cut the budgets of local
governments if they don't spend most of their allocated cash.
China's economy is widely expected to grow around 7 percent this
year -- the slowest pace in a quarter of a century. That would mark
a loss of momentum from last year's 7.4 percent but would be in line
with the government's 7 percent growth target.
Analysts are divided over whether the worst is over for this year.
Economists at the central bank said this week they expect growth to
pick up modestly in the next six months as previous policy easing
measures start to take effect and the housing market stabilizes.
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But other analysts have disputed the view as being unduly
optimistic, pointing to huge inventories of unsold homes, excess
capacity in many heavy industries such as steel and high levels of
local government debt which is curbing their ability to spend.
Stung by weak demand and China's nationwide reform efforts to move
manufacturers up the value chain, China's factory output have grown
at an average monthly rate of about 6 percent this year, almost a
third of the pace seen in 2007.
Cooling inflation and falling producer prices have further
compounded their pain by elevating their real borrowing costs.
Morgan Stanley estimates that China's real interest rates are close
to 3 percent, well above real U.S. rates which are around negative 2
percent, which implies that banks are paying borrowers to take out
loans.
Sputtering factories have in turn weighed on banks, especially in
industrial areas.
Sources told Reuters on Wednesday that Bank of China
<601988.SS><3988.HK>, the country's fourth-largest lender, is
missing its profit target in Zhejiang, a manufacturing stronghold
where thousands of factories have shut in the past three years.
(Reporting by Koh Gui Qing; Editing by Kim Coghill)
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