Chinese factory output and money supply in May rose at their slowest annual pace in months, suggesting the government is making progress in reining in a booming economy.
Industrial output rose a slower-than-expected 17.5 percent in the year through May, its slowest annual pace in seven months and down from the 19.1 percent growth registered in the year through April, data showed on Thursday.
"This is a good number. We were looking at something like 18.5 percent," said Tim Condon, chief economist at ING Financial Markets in Hong Kong.
"This would definitely weigh in on the side of the soft-landing camp and from that perspective, will ease the anxiety of a hard landing," he said.
Brisk factory output and its impact on the country's limited energy supplies and excess capacity have added to government fears that China's boom could turn to bust in the face of mounting inflation and fast investment growth.
The authorities have tried to apply the brakes on the world's fastest growing major economy by curbing investment projects and ordering banks to hold more capital in reserve to crimp lending.
Adding to evidence that those measures may be working, annual growth in broad money supply slowed in May to 17.5 percent, its slowest pace in at least a year, central bank figures showed.
"The macro-economic controls have started taking effect," the central bank said in a statement.
Yuan denominated bank loans hit 17.06 trillion yuan at the end of May, up 18.6 percent compared to a year earlier, but 1.3 percentage points lower versus the end of April.
Car executives at China's largest auto show said this week that the proportion of buyers using loans to make purchases had fallen to about five percent in May from 20 percent earlier.
"Very encouraging. They (the money supply figures) simply help to confirm the slowdown in production," said J.P. Morgan economist Ben Simpfendorfer.
But some analysts think China may still need to raise interest rates for the first time in nearly a decade if inflation rises to worrying levels of around five percent.
Factory output growth had been expected to rise around 18.8 percent in the year through May, according to a median forecast of five economists.
Output growth has been nudging lower in recent months. March output rose 19.4 percent from a year earlier and in February it was up 23.2 percent. Prior to that, the industrial sector showed successively faster growth from a year earlier in each month from September to February.
Still, many analysts say output growth in excess of 15 percent is unsustainable over the longer term, though robust export demand suggests it is likely to persist for a few months.
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