China's Industrial Output Continues Slow Recovery from Virus Hit

China's factory output rose again in May, while official data Monday also showed retail sales improved further after collapsing at the start of the year but officials warned the country faced a rocky recovery as it emerges from the coronavirus crisis.

The world's number two economy has been hammered by the disease, with strict lockdown measures to contain it causing the first recession in decades during January-March.

Industrial production expanded 4.4 percent last month, the Bureau for National Statistics (NBS) said, up from 3.9 percent in April, which was the first increase this year.

The reading was slightly short of the five percent forecast in a Bloomberg survey but is a sharp improvement on the 13.5 percent collapse in the first two months of the year.

Retail sales remained in negative territory, shrinking 2.8 percent in May, and while it was also worse than the expected two percent estimated, it was much better than the 7.5 percent contraction suffered in April.

Consumer spending is increasingly crucial for the Chinese economy as leaders look to transition it from one driven by investment and exports, and has taken on more importance with overseas markets battered by the virus. 

But sluggish spending indicates people are still anxious about returning to their normal lives.

Jiang Yuan, deputy director of the industry department at the NBS, noted Monday that the recovery of some industries and products weakened in May, adding that "the external environment is complex, and the stable operation of the industrial economy still faces many difficulties and uncertainties."

- Jump in home sales -

China's property market saw improvement, with new home sales jumping 9.7 percent on0year in May owing to pent-up demand. 

But fixed-asset investments shrunk 6.3 percent on-year in January-May -- slightly more than the six percent forcast -- having plunged 10.3 percent in the first four months. 

During past downturns, Beijing has banked on higher infrastructure spending to lead a recovery, and cement and steel mills have already cranked up furnaces to more than 92 percent of capacity.

Unemployment -- which has climbed this year -- shrank slightly to 5.9 percent, from six percent in April.

Martin Rasmussen, China economist at Capital Economics, warned that "the bulk of job losses from COVID-19 were among migrant workers, who are not properly accounted for in the survey".

However, he said there are "signs elsewhere that migrant job growth picked up in May, especially in the construction sector".

Even so, analysts warned that there is still a lot of uncertainty among China's spenders.

"The retail sales could be a one-off improvement from the May Golden Week long holiday," said Iris Pang, ING chief economist for Greater China.

She warned that the "unstable job market and healthcare concerns are the main factors slowing down the recovery...(and) people were still spending carefully".

The Communist Party has long staked its legitimacy on delivering jobs and prosperity in return for public acquiescence to its political monopoly.

A fresh outbreak of the coronavirus in Beijing has raised concerns about a new wave of infections that could hurt any economic recovery.

China's economy shrank 6.8 percent in the first quarter. 

The government also abandoned setting an annual GDP growth target -- for the first time in nearly two decades, citing "great uncertainty" caused by the coronavirus pandemic. 

"With inflation falling, we also think the People's Bank of China could cut interest rates," Lu Ting, chief economist at investment bank Nomura said.