BEIJING: China's factory output and retail sales remained weak in May, official data showed Wednesday, with tepid demand and lingering COVID restrictions putting a damper on growth in the world's second-largest economy. The government is persisting with a zero-COVID strategy to stamp out clusters as they emerge, but this has placed companies and consumers at the mercy of snap, economically damaging lockdowns.

Retail sales sank 6.7 percent on-year in May, the National Bureau of Statistics (NBS) said, though that was an improvement from April's 11.1 percent drop. The figure was also slightly better than forecasts from analysts polled by Bloomberg. "In May, our economy gradually overcame the adverse impact of the pandemic," NBS spokesman Fu Linghui told reporters.

"But we also have to see that the international environment has become more complex and severe, and the domestic economic recovery still faces many difficulties and challenges." It was the third straight month of contraction in retail sales, according to official data, suggesting nervous consumers are tightening their purse strings with the persistent threat of lockdowns.

But industrial production was up 0.7 percent after falling 2.9 percent in April, while the urban unemployment rate ticked down to 5.9 percent. Shanghai, China's most populous city, started emerging from a grueling two-month lockdown in June, providing a boost to economic sentiment. Tommy Wu, lead China economist at Oxford Economics, speculated that "the worst of lockdowns is probably behind us." However, he added that it will be "difficult for household consumption to recover strongly" while China's zero-COVID strategy remains in place.

Meanwhile, concerns are mounting over the trend in unemployment as millions of students graduate in the summer, Zhiwei Zhang, of Pinpoint Asset Management, said. Unemployment among rural migrant workers remained elevated, data showed, while home sales in the first five months dropped 34.5 percent. Observers remain cautious in part because of a property sector slump and the government's reluctance to transition away from zero-COVID despite recent fine-tuning. "There is no guarantee that a new wave will not hit in coming months," Nomura analysts said Wednesday.

Shanghai lockdown

Meanwhile, Shanghai's lengthy COVID-19 lockdown pushed a quarter of US firms in the city to cut investment plans and nearly all to drop revenue forecasts, a business group said Wednesday. The downbeat findings of the American Chamber of Commerce (AmCham) Shanghai survey were the latest sign of the impact of virus controls in China-the only major economy still pursuing a zero-COVID strategy, using lockdowns and mass testing to eliminate all outbreaks.

But such measures left its biggest city Shanghai sealed off for around two months, with a shortage of truckers leaving goods piled up at its port and business closures battering firms. Over 90 percent of US companies in the metropolis surveyed by AmCham Shanghai have cut their revenue projections for the year, the group said in a report on Wednesday.

The survey of 133 companies also found a quarter were expecting revenues to be more than 20 percent lower than projected. Nearly 25 percent of companies surveyed have cut investment plans, AmCham Shanghai said. The commercial hub of 25 million people was closed in sections from late March, when the Omicron variant fuelled China's worst COVID outbreak in two years. Signs of resentment and anger emerged throughout the lockdown, with some residents struggling to receive fresh produce or access non-Covid medical care.

Although authorities drew up a "white list" of companies that could continue production, this was generally with limitations to minimize virus spread and many smaller firms continued to grapple with restrictions. AmCham said around a quarter of manufacturers surveyed were speeding the localization of their China supply chains while moving production of global goods out of the country. As of early June, only 35 percent of the manufacturers polled were operating at full capacity and close to three-quarters of all firms surveyed had yet to enjoy economic support measures since Shanghai's lockdown.

AmCham Shanghai president Eric Zheng said the lockdown's impact on businesses has been "profound". "The Shanghai government must act quickly to ensure unhindered supply chains, logistics and worker mobility and to accelerate the provision of financial support to businesses," Zheng said. This week, analysts at Fitch ratings downgraded China's growth predictions for the year to 3.7 percent based on "the cautious pace at which pandemic-related restrictions have been eased". This would be far below China's target of around 5.5 percent full-year growth. - AFP