Weak China investment, retail sales suggest economy losing steam

BEIJING: China reported weaker-than-expected investment and retail sales in April and a drop in home sales, clouding its economic outlook even as policymakers try to navigate debt risks and defuse a heated trade row with the United States.
Fixed asset investment grew the slowest since 1999 while the pace of retail sales softened to a four-month low, suggesting a long-anticipated slowdown in the world’s second-largest economy may finally be setting in even as protectionism is on the rise.
The lone bright spot on Tuesday’s activity data was industrial output, which jumped more than expected as automobile and steel production surged.
“Industrial activity was buoyed by the easing of pollution controls (imposed over the winter). But there are signs in the rest of today’s data that the economy is losing momentum,” Capital Economics senior China Economist Julian Evans-Pritchard wrote in a note following the data.
“Domestic spending is likely to continue to soften given the headwinds from slowing credit creation,” he said, adding that the rebound in industry may be short-lived once companies rebuild inventories which were depleted in recent months.
Capital Economics has long predicted Beijing will loosen monetary policy later this year to keep growth from slowing too sharply as it continues a crackdown on financial risks.
Industrial output rose 7.0 per cent in April, the National Bureau of Statistics said, beating forecasts for a rise of 6.3 per cent and up from a seven-month low of 6.0 per cent in March.
Sino-US trade frictions have yet to show an impact on China’s economy, the statistics bureau said.
But while April exports and imports were surprisingly solid, business surveys point to a sharp weakening in export order growth, possibly as companies grow worried about being stuck with high inventories if the US and China start imposing tit-for-tat tariffs.
Analysts also suspect some firms may be rushing out shipments to beat any punitive trade measures, flattering the most recent export figures but blunting future gains.
Washington and Beijing will resume trade negotiations this week, after initial talks earlier this month appeared to make little progress in narrowing their differences.
Investment growth slowed pretty much across the board, adding to views that rising borrowing costs — a byproduct of the regulatory crackdown on riskier lending — are finally starting to drag on activity.
Fixed-asset investment growth slowed to 7.0 per cent in January-April from a year earlier, versus forecasts of only a slight dip to 7.4 per cent.
Growth in April cooled to around 6 per cent, analysts estimated.
Private sector investment growth moderated to 8.4 per cent, from 8.9 per cent in the first three months.
Private investment accounts for about 60 per cent of overall investment in China and has rebounded this year as spending by heavily-indebted state firms slows. Growth in infrastructure spending, a powerful economic driver last year, slowed to 12.4 per cent in the first four months from 13 per cent earlier in the year. — Reuters