Asia Economy

China May factory output beats expectations with 6.5% gain

Key Points
  • Industrial output and retail sales beat analyst expectations
  • Figures show strength of private investment flows
The first C919 passenger jet made by the Commercial Aircraft Corporation of China (Comac) is pulled out next to a Chinese national flag during a news conference at the company's factory in Shanghai, Nov. 2, 2015.
China Daily | Reuters

China's factory output grew 6.5 percent in May from a year earlier, slightly better than expectations along with retail sales that rose a more than seen 10.7 percent, but January to May fixed-asset investment grew 8.6 percent—less than forecast.

Analysts polled by Reuters had predicted factory output would grow 6.3 percent in May, easing slightly from 6.5 percent growth in April.

Fixed-asset investment had been forecast to grow 8.8 percent over the first five months of the year, easing from 8.9 percent in January-April. Retail sales rose 10.7 percent in May from a year earlier, unchanged from April and above analyst expectations for a 10.6 percent rise.

Growth of private investment slowed to 6.8 percent in January-May from 6.9 percent in the first four months, suggesting a slight weakening of the private sector's appetite to invest as small- and medium-sized private firms still face challenges in accessing financing.

Private investment accounts for about 60 percent of overall investment in China.

China is targeting growth of around 9 percent in fixed-asset investment for 2017, and expects retail sales to increase about 10 percent. China has cut its economic growth target to around 6.5 percent this year to give policymakers more room to push through painful reforms and contain
financial risks after years of debt-fueled stimulus.

Beijing has continued to tighten the screws on riskier forms of financing, which is expected to drag on the world's second-largest economy in coming months after an unexpectedly strong first quarter.

Kunal Ghosh of Allianz Global Investors said declining fixed asset investment was a positive indication of deleveraging.

"We really like that, otherwise they would be building bridges to nowhere and that is what China is not doing," the emerging markets portfolio manager told CNBC's Capital Connection.

The One Belt, One Road project will also help to reduce surplus capacity, he added.

The Chinese statistics bureau said in a statement that the economy maintained "sound and steady" momentum in May amid reforms.

"However, we must be aware that there are still destabilizing factors and uncertainties both at home and abroad," the bureau added.

- CNBC contributed to this article