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Economy

China's economy slackens as investments lag

New vehicles sit in Chongqing as auto sales in China decline.

BEIJING -- The Chinese economy is still meandering, government data for May released Thursday shows.

     Though industrial output improved slightly, investments -- especially in real estate -- weakened substantially. Home sales are partially recovering, but the industry is focused on selling the remaining homes rather than on new investments. It is strongly anticipated that China's government will be forced to engage in further monetary easing or similar policies if it wants to achieve the goal of roughly 7% economic growth this year.

     Real estate sales for January through May grew 3.1% from the year-ago period. But investment in real estate development rose only 5.1% in the January-May period, 0.9 point less than for January-April. That marks the smallest growth since 4.9% for January-April 2009, right after the global economic crisis.

     The Chinese government is stepping up investment in infrastructure projects such as railways. But fixed asset investments, which cover buildings and facilities, increased only 11.4% in the January-May period. That is 0.6 point lower than the January-April figure and the lowest since the 9.7% increase posted for all of 2000. Major state-owned companies are also trimming capital investments amid an anticipated economic slowdown.

     Retail sales increased 10.1% in May from the year-ago period. However, it is roughly unchanged from April. With consumer spending lacking the momentum to pull the economy along, anemic real estate investment is hurting the already weak production and sales of durables, such as automobiles.

     The inland city of Chongqing has been holding an auto exhibition and sales event since Wednesday. The city is offering a rebate of 1,000 yuan ($161) to buy a vehicle this month. But sales are slow, and one dealer says they are resorting to offering discounts of around 40%.

     New-car sales for both April and May declined on the year. Inventory is growing, and production of passenger vehicles in May plunged 15% from last year, a second-straight month of double-digit declines. In Chongqing, rows of domestically produced cars sit around an auto plant rusting in the rain.

     Industrial output grew 6.1% in May, up 0.2 point from April, but this remains below the growth of more than 8% seen for 2014.

     China's central bank has cut interest rates three times since November. The money supply at the end of May was 10.8% bigger than a year earlier, the central bank said Thursday. That increase is 0.7 point higher than April's number, but it does not reach the Chinese government's goal of a 12% increase.

     Debt held by China's local governments is also a concern. The Finance Ministry has doubled the amount of government bonds localities can issue to a total of 2 trillion yuan. Further monetary easing also may be needed to make it easier for banks to buy the bonds and for local governments to keep the interest rates down.

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