Quick Take: China's Growth Shows Signs of Slowdown

The slower than expected growth is reflected in the surprise decision from China's central bank not raise its key interest rates in the wake of the US Federal Reserve's move overnight.

Retail sales also disappointed, tumbling from nearly 10 per cent growth in April to 8.5 per cent in May, its slowest pace in around 15 years.

"Get ready for headlines talking about Chinese deleveraging hitting the economy - except it isn't even deleveraging yet!" the Rabobank team was quoted by Reuters. "The market generally believes the infrastructure construction sector is more active in the second half than in the first half, which could lift demand for steel products".

Chinese policymakers have been walking a fine line between rolling out measures to curb financial risks and pollution and tapping the brakes so hard that business activity slows sharply.

Louis Kuijs, head of Asia Economics for Oxford Economics, said China's GDP growth may slow to 6.4 per cent this year, from 6.9 per cent in 2017. The expansion in infrastructure investment has been lingering at record lows this year, and the January-May figure marked the fifth straight month that growth decelerated.

The bureau attributed the lower retail sales growth to the holiday effect and consumers deliberately delaying their purchases to take advantage of a reduction in import duties that will come into effect on July 1.

However, after a brighter than expected start to the year, China's second quarter appears to be losing momentum.

"We would also be less anxious about weaker-than-expected retail sales growth".

A third round of talks between China and the United States early this month ended with few signs of progress, as Beijing issued a counter-warning that any trade and business deals reached with Washington would be void if the United States implemented tariffs.

"We have been expecting the economy to slow down for a long time", he said. Investment in railways, which comes nearly exclusively from state and local governments, fell 11.4 per cent year on year in the period. Growth in infrastructure spending, a powerful economic driver past year, slowed to 9.4 per cent in the first five months, compared with a rise of 12.4 per cent in January-April.

Government-driven infrastructure investment, which includes the spending in the construction of roads, railways and other public facilities - though not those for electricity and other utilities - gained 9.4% year-on-year in the first five months of the year, slowing from an annual growth rate of 12.4% in the January-April period, NBS data showed. Data from the China Construction Machinery Association showed the sales of excavators doubled in May from a year earlier. It expanded 8.1 per cent in January-May versus 8.4 per cent in the first four months. The International Monetary Fund earlier forecast 6.6 per cent growth for China in 2018. Vehicle sales in the month fell by 1 per cent from a year earlier, while industrial production, another pillar of growth, also lost steam, the National Bureau of Statistics said.

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