Chinese economy weakens as manufacturing, investment and retail sales all slow
China’s economy stumbled last month, as retail sales grew at their weakest pace for 16 years and industrial production fell sharply.
According to the National Bureau of Statistics of China, retail sales value growth was 7.2% year on-year in April, down from the 8.7% seen in March and the weakest pace since 2003. It was also below forecasts; economists had been looking for growth of around 8.6%.
Industrial production growth, meanwhile, slowed to 5.4% year-on-year in April, down from 8.5% in March and below the consensus for growth of around 6.5%. The biggest slowdown was in mining and manufacturing.
Fixed asset investment grew 6.1% in the year-to-date to April, against 6.3% in March and below forecasts. Economists attributed the easing to slower progress in completing investments in planned infrastructure projects alongside weaker investment in manufacturing.
Iris Pang, economist for Greater China at ING, said the slower retail growth was broad-based. "This is worrying, as April was a month when China’s stock market rose amid good progress in trade talks, so consumer sentiment should have been better."
She continued: "This is significant. We think it’s likely that consumers were worried about their job security or wage growth, and so tightened their purse strings.
"This is also reflected in the sales of clothing failing to -1.1% year-on-year from 6.6%; when clothing sales shrink, it signals consumers want to save rather than to spend."
Freya Beamish, chief Asia economist at Pantheon Macroeconomics, said: "The consensus [for industrial production growth] looked high, but we hadn’t expected this extent of a drop. Indeed, April looks like an overshoot. On our index, constructed from the official month-on-month numbers, growth slowed to 6.1% from 6.4% in March.
"Motor vehicle production seems to be teetering again, after a nascent recovery in the first quarter. Cement production shows similar developments, suggesting that the first-quarter strength was indeed infrastructure-led, rather than an early response to a re-awakening property market.
"In short, first-quarter drivers are already waning, justifying our call that the authorities will remain in easing mode into the second half."
ING said GDP growth was at risk of falling below 6% in the second quarter if the slowdown in activity continued.
Argued Pang: "We believe that the Chinese government will not wait for another set of data before it speeds up stimulus measures. Premier Li mentioned recently that tax cuts needs to be implemented effectively. We believe an import-tax rebate for exporters could be possible.
"We also expect the People’s Bank of China to have targeted liquidity injection measures in May or June so that smaller exporters and their suppliers can get credit at a lower rate."
China has been one of the world’s economic powerhouses but its growth has stalled, despite attempts by the government to shore it up, as consumers rein in spending, concerns about the escalating US-Sino trade war grow and increased tariffs start to bite.
Talks between Washington and Beijing concluded on Friday without agreement prompting first America and then China to increase tariffs on a range of goods from 10% to 25%.