China’s economy showed signals of recovery in May, but the market is cautious.

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Production in the industrial sector grew unexpectedly in May due to the ease of COVID curbs. However, consumer spending was still weak. The Chinese economy showed signs of improvement in May following a slump during the previous month, in which industrial production increased surprisingly. But the consumption rate was still low and highlighted the difficulty for policymakers facing the constant burden of strict COVID curbs.

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The output of the data industry grew 0.7 percent in May compared to one year ago, after declining 2.9 percent in April, figures provided by the National Bureau of Statistics (NBS) released on Wednesday. It was compared to the 0.7 percent decline predicted by analysts in the Reuters poll by the news agency.

The growth in the industrial sector was fueled by the ease of COVID curbs and strong global demand. China’s exports expanded by a double-digit rate in May, exceeding expectations as factories started to restart and logistical snags were eased.

The mining sector was the most successful, with output increasing by 7 percent from the previous month. The manufacturing industry racked up only 0.1 percent growth, mainly due to the manufacturing of new energy vehicles, which increased by 108.3 percent over the year.

“Overall, our country’s economy overcame the adverse impact from COVID [in May] and was showing a recovery momentum,” NBS Spokesperson Fu Linghui told a press conference, saying that he anticipates the recovery to continue to grow during June because of the policies that support.

However, it offers an opportunity to revive growth in the world’s second-largest economy after consumers and businesses were severely affected by the total or partial lockdowns across dozens of cities between March and April. This included an extended shutdown in the commercial hub of Shanghai.

Retail sales slipped

The Chinese government has been increasing the spending on infrastructure to increase investment. China’s cabinet has also released the release of 33 measures encompassing fiscal, investment, financial and industrial policies to help revive its economy devastated by the pandemic.

Based on a nationwide survey, the jobless rate dropped by 5.9 percent in May, up from 6.1 percent recorded in April. This is still higher than the government’s target for 2022 of less than 5.5 percent. In particular, the jobless rate in 31 of the largest cities increased by 6.9 percent, the highest on record.

Confident economists predict that employment will decline before improving with record numbers of graduates joining the workforce over the coming three months.

China has set a growth goal of around 5.5 percent this year; however, many economists think it is becoming increasingly impossible to achieve.

Chinese banks have extended 1.89 trillion dollars ($281bn) in loans in May. Triple the amount of April’s and beating expectations. However, 38 percent of new loans in May were bill financing on a short-term basis, indicating that the demand for real credit is weak.

The central bank kept the policy rate unchanged for a fifth consecutive month at the mid-term, which is in line with the market’s expectations.

A new lockdown saga is looming.

Although the world’s top producer reported a more robust than expected growth in exports during May, sluggish external demand from the Ukraine conflict and the rapid increase in production of Southeast Asian nations threaten the country’s trade growth prospects.

There are fears of new lockdowns that have a lot of weight under China’s zero COVID policy.

A week after the opening of Shanghai, the city’s government required 15 of the city’s 16 districts to conduct tests in mass to stop an increase in cases linked to hair salons.

The authorities in Beijing have warned that this city with 22 million residents was in a “race against time” to be able to deal with the most severe outbreak since the pandemic started.

A possible lockdown or supply chain disruptions in the event of future COVID-19 outbreaks could impede the economy’s growth, as Beijing has not shown any sign of relaxing its zero-COVID policy, analysts say.

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