China’s economic growth stalls in April in sign of testing times ahead

Slowdowns in industrial production, investment and retail sales show lack of solid base, narrowing time for policymakers to deal with financial risks

PUBLISHED : Monday, 15 May, 2017, 5:00pm
UPDATED : Monday, 15 May, 2017, 10:51pm

China’s economic growth stalled last month, with activity from industrial production to fixed-asset investment and retail sales weakening as the government froze housing deals in big cities and clamped down on financial irregularities.

Expansion in industrial production slowed to 6.5 per cent in April from 7.6 per cent in March while growth in fixed-asset investment decelerated to 8.9 per cent from January to April, from 9.2 per cent in the January to March period and retail sales, a gauge of consumption, also decelerated, according to the latest statistics released by National Bureau of Statistics on Monday.

The numbers came on the heels of a drop in the purchasing manager index gauge of manufacturing sentiment, a slowdown in exports and a big slump in shadow banking activities, painting a gloomy picture of the world’s second-biggest economy after surprisingly strong growth in the first quarter.

Ding Shuang, chief China economist at Standard Chartered Bank, said China’s re-stocking process, which underpinned a global reflation earlier this year, may have peaked in March and started to fall.

”A slowdown in real estate investment and government-led deleveraging will cast downward pressure on the economy,” Ding said.

Is the worst over for China’s economy and currency?

China reported 6.9 per cent economic growth for the first quarter of 2017, a level that is high enough to stave off a hard landing for the economy and which paves the way for Beijing to achieve its 6.5 per cent growth target for this year. Many institutions, including the International Monetary Fund, have revised up their forecasts for China’s economic growth this year.

However, a slowdown in April indicators showed that the Chinese economy is not on a solid footing and its recovery remains fragile.

Crude oil production dropped 3.7 per cent to 15.99 million tonnes last month, the lowest since September 2016. However, steel output reached a record 72.8 million tonnes, despite Beijing’s orders to cut down on excessive capacity.

China keeps 2016 growth on track but faces uphill battle in 2017

One of the most important sectors for future growth is the property market, but there is a strong risk that a slower increase in sales and floor space sold in commercial residential properties last month will translate into weak property investment, said Claire Huang, China economist at Societe Generale.

Property sales by floor space and value slowed significantly in April as at least 50 municipal governments across China adopted measures to restrict purchases, but property investment still accelerated. Real estate investment grew 9.3 per cent in the first four months of the year, land sales rose 8.1 per cent by area with transaction values increasing 34.2 per cent.

Larry Hu, head of Greater China economics at Macquarie Group, said the next couple of months remains as a window for the authorities to deal with financial risks, but the window would close as the need for stability becomes paramount in the run-up to the 19th Party Congress, when the government would devote more efforts to supporting growth.

“Clearly, policymakers want to deleverage the financial system, but not to deleverage the whole economy,” Hu said.