China's new leaders face a test of their resolve to forgo short-term stimulus for slower, more-sustainable growth after May trade, inflation and lending data trailed estimates, signalling weaker global and domestic demand.
Industrial production rose a less-than-forecast 9.2 per cent from a year earlier and factory-gate prices fell for a 15th month, National Bureau of Statistics data showed yesterday in Beijing. Export gains were at a 10-month low and imports dropped after a crackdown on fake trade invoices while fixed-asset investment growth moderated and new yuan loans declined.
The data add pressure on President Xi Jinping and Premier Li Keqiang to shore up growth less than three months into their tenure, after first-quarter expansion unexpectedly slowed. While the figures boost the case for easing monetary policy or approving more spending, the government's room is limited by rising home prices, financial risks and overcapacity.
"The May data will force China's leadership and the central bank to rethink growth and inflation - it seems they were too optimistic about growth and too concerned about inflation," said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd in Hong Kong.
"It's a test for China's leadership to see whether they are determined to reform."
China's statistics increase the odds of an interest-rate cut, and the government can make fiscal policy more "proactive," said Shen, who previously worked at the European Central Bank.
In Hong Kong, the Hang Seng China Enterprises Index fell 0.1 per cent as of the midday break in trading. China's financial markets are closed today through June 12 for the Dragon Boat Festival holiday.
