China slams on the stimulus brakes
The rally in China's old economy is fading just three months after it began, according to official data released on Monday, which showed construction activity growing at its slowest pace in 16 years.
Fixed Asset Investment (FAI), a key indicator of infrastructure development and property construction, increased at a tepid 9.6 per cent over the first five months of the year.
While this is high by Western standards it was well below expectations and a big drop from the 10.5 per cent reported over the first four months of the year.
Fixed Asset Investment increased at 9.5 per cent over the first five months of the year, China's National Bureau of Statistics said on Monday. Kevin Frayer
The data, released by the National Bureau of Statistics, showed weak investment by the private sector partially offset by the government continuing to support growth across the broader economy.
"State sector investment remained strong, growing at over 20 per cent year on year," said Julian Evans-Pritchard from Capital Economics.
"But private sector investment growth barely expanded last month."
Mr Evans-Pritchard estimated overall FAI expanded by 7.5 per cent in May, down from 10.1 per cent in April.
Property investment, which is a key driver of the iron ore price, slowed to 7 per cent over the first five months of the year, down from 7.2 per cent previously.
"The property sector seems to have peaked," said Raymond Yeung, an economist at ANZ.
The decline in FAI is in line with recent pronouncements from Beijing, where a supposedly "authoritative source" told state-run media outlets China could not continue to rely on debt-fuelled construction activity to support economic growth.
This was seen as a repudiation of Premier Li Keqiang's pro-growth policies in the early months of this year by powerful Communist Party figures including President Xi Jinping.
Growing debt
China's rising debt levels have been a concern for some years and many hedge funds are betting that high leverage will lead to a sharp decline in growth and could even trigger a banking crisis.
The International Monetary Fund is the latest to raise concerns about China's corporate debt levels, saying they are a "key fault line" in the economy.
IMF deputy managing director David Lipton said on Saturday China's corporate debt, at 145 per cent of gross domestic product, was "very high by any measure".
"Corporate debt remains a serious – and growing – problem that must be addressed immediately and with a commitment to serious reforms," Mr Lipton said in his speech to the Chinese Economists Society.
State-owned enterprises account for 55 per cent of corporate debt, despite making up only 22 per cent of economic output.
"Banks are holding more and more non-performing loans ... The past year's credit boom is just extending the problem. Already many SOEs are essentially on life support."
Overall debt in China has climbed to about 225 per cent of GDP. Both household debt and government debt stand at about 40 per cent of GDP, which is not high by international standards.
Other data released by Beijing on Monday showed industrial production growing at a better than expected 6 per cent in May, compared to a year earlier.
Retail sales were slightly weaker, growing by 10 per cent in May, down from 10.1 per cent in April.
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