Slowdown in inflation and bank lending add to downbeat view of Chinese economy

Slower Chinese inflation in May, combined with below-expectation bank lending, added to a downbeat picture of the world’s second-biggest economy in the current quarter, following the release of new data today.

China’s economy grew at its slowest pace for 13 years last year, and so far this year it has failed to register a significant upturn, prompting downgrades from some economists who fear the country would even fall short of its annual growth target of 7.5 per cent.

Data from the National Bureau of Statistics showed China’s consumer inflation slowed to 2.1 per cent, dragged down by slower food inflation, while the producer price index fell 2.9 per cent from a year earlier, the lowest since September. Overseas sales rose just one per cent from a year earlier, down from 14.7 per cent the previous month, the customs administration said, after a crackdown on fake trade invoices.

Adding to the evidence of a slowdown was separate central bank data showing that Chinese banks lent 667.4 billion yuan (€82.3 billion) in new local currency loans in May, missing market expectations of 850 billion yuan (€104.8 billion) and lower than April’s 792.9 billion yuan (€97.8 billion).

"The macro data for May have confirmed that the economy is stuck in stagnant growth again after quite a brief rebound," said Ren Xianfang, senior economist at IHS. Mr Ren said the latest PPI data indicated deflation has deepened.

"Deflation has lasted for 15 straight months, compared with 12 months during the global financial crisis. There are also 11 straight quarters for China to report deflation in over 20 sectors, compared with eight in the global financial crisis," he said.

This was possibly another sign that the current downturn might turn out to be the most drawn-out one since the Asian financial crisis, which saw China clock up 31 straight months of deflation.

Industrial production, which measures output at the country’s factories and mines, rose 9.2 per cent year-on-year in May, marginally weaker than the 9.3 per cent increase in April, the statistics bureau said.