China’s economy appears to have slowed abruptly, even before the recent escalation of trade hostilities with the US.
- China’s economy appears to be slowing again after stabilising earlier this year
- Retail sales, industrial production and infrastructure investment in April were all much weaker than expected
- Chinese authorities are expected to unleash more stimulus as heightened trade tensions drag economic growth down further
The monthly release of key economic data showed widespread weakness across the important domestic drivers in retail and the industrial heartland during April.
Retail sales grew at their slowest pace since during the SARS outbreak in 2003.
Sales lifted 7.2 per cent over the month, but that was a big step down from the 8.7 per cent in March and much lower than analyst expectations.
Housing-related consumption — including furniture, home appliances and construction & decoration material — slowed dramatically, as did sales of clothes, phones and cosmetics.
Industrial output slowed from 8.5 per cent growth to 5.4 pre cent, also far weaker than expected, while fixed-asset investment — a proxy for infrastructure and property spending — also headed south.
The rapidly cooling domestic economy doubles down on weaker than expected export demand putting further pressure of Chinese officials to consider increased stimulatory measures — particularly as the far tougher US trade restrictions are yet to bite.
ANZ’s Betty Wang said the big pullback in April appears to have originated from China’s manufacturing sector, with automobile and electrical machinery production noticeably lower.
About the only sector holding up was property.
Property investment since January has grown by almost 12 per cent on a year-on-year basis, the most intense spending in the sector since 2015.
The rebound has been driven by banks being encouraged to lend more.
“During the same period, growth of developers’ funding, which holds the key to property investment, also jumped to 8.9 per cent year-on-year, the fastest in 20 months, as bank loans, advance payments, and mortgages grew at a quicker pace,” Ms Wang said.
However, another spurt in residential building investment has some analysts worried, given more than 20 per cent of Chinese dwellings were vacant at the end of 2017, and there is now as much as 6.4 billion square metres of empty residential floor space.
New stimulus needed
“Today’s data suggests the need for proactive policy support, especially amid an escalation in the China-US trade disputes,” Ms Wang said.
“The renewed tensions may pose further uncertainties to China’s manufacturing sector, and the data today may trigger market concerns about the sustainability of China’s recovery [late in the first quarter].”
Ms Wang said Chinese policymakers will more likely favour targeted monetary policies, industrial subsidies, and fiscal policy — including more tax cuts — to counter the mounting risks to growth.
The new round of tit-for-tat tariffs saw the US bump up the effective tariff rate on $US200 billion worth of Chinese imports from 10 to 25 per cent. China retaliated, albeit on a smaller scale.
The big investment bank Citi said the new regime of tariffs will lop around 0.5 percentage points off Chinese GDP, cut exports by 2.7 per cent and see more than 2 million Chinese workers lose their jobs.
Capital Economics senior China economist Julian Evans-Pritchard argued that, given the budgetary restraints of local governments, central authorities would have to act again.
“We had warned that economic momentum risked weakening again in the near-term as the prop from this year’s fiscal front-loading faded,” Mr Evans-Pritchard said.
“Assuming we see further easing soon, we think growth should stage a mild recovery in the second half of this year. But with the scale of stimulus likely to remain smaller than in previous downturns, we don’t anticipate a strong recovery.”