China factory output, retail sales weak as Covid shadow persists

China’s factory output and retail sales remained weak in May, official data showed Wednesday, with tepid demand and lingering Covid restrictions putting a damper on growth in the world’s second-largest economy.

The government is persisting with a zero-Covid strategy to stamp out clusters as they emerge, but this has placed companies and consumers at the mercy of snap, economically damaging lockdowns.

Retail sales sank 6.7 per cent on-year in May, the National Bureau of Statistics (NBS) said, though that was an improvement from April’s 11.1 per cent drop.

The figure was also slightly better than forecasts from analysts polled by Bloomberg.

“In May, our economy gradually overcame the adverse impact of the pandemic,” NBS spokesman Fu Linghui said at a news briefing.

“But we also have to see that the international environment has become more complex and severe, and the domestic economic recovery still faces many difficulties and challenges.”

It was the third straight month of contraction in retail sales, according to official data, suggesting nervous consumers are tightening their purse strings with the persistent threat of lockdowns.

Industrial production was up 0.7 per cent after falling 2.9 per cent in April, while the urban unemployment rate ticked down to 5.9 per cent.

Shanghai, China’s most populous city, started emerging from a gruelling two-month lockdown in June, providing a boost to economic sentiment.

But observers remain cautious in part due to a sharp contraction in the property sector and the Chinese government’s reluctance to transition away from zero-Covid.

“We would view this as only a respite, rather than a turning point,” Nomura analysts said in a recent report.