Growth in China's fixed-asset investment slipped below 10 per cent for the first time since 2000 in January-May as a boost from record credit growth seemed to be quickly fading, putting expectations of further stimulus back on the table.
Analysts say a sharp deceleration in private investment could jeopardise China's growth target of 6.5-7 per cent this year unless the government pumps even more money into the economy, despite growing global fears that the country is already amassing too much debt.
The International Monetary Fund was the latest to voice such concerns at the weekend, saying Beijing must act quickly to tackle mounting corporate debt which it estimates has swelled to about 145 per cent of gross domestic product.
A further increase in debt levels could handicap China's long-term economic growth, David Lipton, first deputy managing director of the IMF, said on Saturday.
Data on Monday showed fixed-asset investment growth - a key driver of China's economy - cooled to 9.6 per cent in January-May from a year earlier, missing expectations of 10.5 per cent.
Even more worrying, investment by private firms slowed to a record low, with growth cooling to 3.9 per cent from 5.2 per cent in Jan-April and double-digits last year. Private investment accounts for about 60 per cent of overall investment in China.
Flagging private investment suggests that more and more of China's growth is dependant on government spending channelled through bloated and inefficient state enterprises, which Beijing has publicly pledged to streamline and reform. Investment by state firms rose 23.3 per cent in Jan-May.
It also means authorities may have to take stronger measures to support the economy if they continue to stick to their 2016 growth target, which officials reaffirmed on Monday despite generally weak April and May data.
Indeed, other data on Monday showed that Beijing may already be doubling down on its stimulus bet, as government spending soared 17.6 per cent in May on-year, versus 4.5 per cent in April.
Announcements of big new infrastructure projects seem to come almost daily.
"The government is trying to decelerate a bit on credit growth, but there is no point at this moment because it will have an impact on the growth outlook. Growth is still more important than anything else in China," said Zhou Hao, senior Asia emerging market economist at Commerzbank.
The soft May data also prompted some analysts to underline the possibility of more imminent policy easing by China's central bank, after some had scaled back such expectations following upbeat indicators in March.
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