 China factory output rises in May but officials guarded Beijing (AFP) June 14, 2017 - Output by Chinese factories and workshops topped expectations in May, but officials warned on Wednesday of lingering "unstable and uncertain factors" at home and abroad that could pose a threat to the Asian giant. The reading on industrial production, a key engine of growth, comes as Beijing wrestles with huge debt and excess capacity left over from massive government-backed infrastructure spending at the height of the global financial crisis. There have been renewed concerns about the strength of the world's number-two economy following a mixed bag of indicators in recent months and US President Donald Trump's protectionist rhetoric. But forecast-beating trade figures last week and signs of a pick-up in the global outlook have raised hopes that China will be able to sustain its momentum. The economy maintained "moderate but steady and sound" development in May", National Bureau of Statistics (NBS) spokeswoman Liu Aihua said in a statement. But she warned "unstable and uncertain factors still exist both domestically and externally". Output rose 6.5 percent from a year ago, the NBS said, unchanged from the previous month and slightly higher than forecasts of 6.4 percent in a Bloomberg News poll of economists. Fixed-asset investment excluding rural areas -- which measures spending on real estate, roads and bridges -- slowed to 8.6 percent in the first five months of the year from 8.9 percent in January-April. That missed estimates of 8.8 percent. Growth in retail sales -- a key gauge of consumer spending on everything from shoes and clothes to furniture -- was steady compared with April at 10.7 percent and matched forecasts. "Growth momentum remained largely stable in May, but a cooling property market has started to have a negative effect on investment growth," Nomura research analysts Yang Zhao and Wendy Chen said in a note. China's economy has long been driven by debt-fuelled investment in infrastructure, such as bridges, highways and hydro-electric dams, as well as real estate. But years of freewheeling credit have left it with huge amounts of debt that some fear could trigger a financial crisis, prompting authorities to rein in risky lending and property acquisitions. Such concerns led Moody's to last month slash the country's credit rating for the first time in almost three decades.
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The China-backed Asian Infrastructure Investment Bank expects to more than double its lending power for regional projects over the next five years, a top executive said, denying it was an arm of the Communist Party.
The brainchild of Chinese President Xi Jinping, the multilateral financial institution was launched in January 2016 to counter Western dominance of the World Bank and the International Monetary Fund.
It has already bankrolled a dozen projects, including a highway in Pakistan, a power plant in Myanmar and a deepwater port in Oman, and AIIB's vice president Thierry de Longuemar said more will follow.
So far none of the projects are part of Beijing's much-vaunted Belt and Road infrastructure initiative, but de Longuemar said the bank would be prepared to get involved but not as "an instrument" of the government.
China is the bank's largest shareholder with a 28 percent stake, followed by India with eight percent, and it is chaired by a former Chinese vice minister of finance, Jin Liqun.
"You can't deny that it's a Chinese initiative," de Longuemar told AFP, ahead of the bank's second general assembly on the South Korean island of Jeju on Friday.
- 'Enormous sum' -
"China has a higher interest in the success of this institution. But to say that it is a Chinese bank rather than an international bank would be... a big exaggeration," he added, during an interview at the AIIB's temporary Beijing office staffed by 100 people.
"China's wish isn't to create a new instrument of the Chinese state, it is to demonstrate its ability to promote a truly international institution based in China."
The bank's shareholders have pledged to raise the AIIB's total capital to the "enormous sum" of $20 billion over five years, de Longuemar said, from $9 billion today.
By tapping financial markets, it could quadruple its lending power to $80 billion, added the Frenchman, a former Asian Development Bank vice president.
The bank approved $1.7 billion in loans in 2016 and plans to increase lending to $2.5 billion this year.
"In a few years, we will have a loan capacity that will most likely reach $10 billion a year or more," de Longuemar said.
Critics had feared the bank would set low standards for projects and undermine principles adhered to by the World Bank and other multilateral development finance institutions.
But de Longuemar said the AIIB had a set of principles on financing projects, ensuring they are financially viable and that they follow social and environmental rules.
"There are things it won't finance, like coal-fired power plants," he said.
- Door 'open' to US -
Having the bank's headquarters in Beijing "obviously creates an environment that favours Chinese interests", de Longuemar conceded.
In areas such as transport infrastructure, for instance, "Chinese businesses are particularly competitive", he said.
"If the Chinese are the best bidders, there is no reason to reject their companies."
The bank's three-day meeting on Jeju will officially welcome 19 new members, including Canada, Belgium and Hong Kong, bringing the number of shareholders to 77.
While several European nations have joined the bank, holding a fifth of the capital, the United States and Japan have notably declined to become members.
Former US president Barack Obama's administration chose to stay out of the AIIB on concerns about its transparency and governance.
While it is not clear if Xi raised the issue during talks with US President Donald Trump in Florida in April, it would have been "politically perfectly coherent" for him to have done so, de Longuemar said.
"The door remains open" to Washington, he said.
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China factory gate inflation slows to 5.5% in May
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