By Brian Jackson, China Economist, IHS Markit

 

Key Points:

  • Chinese industrial production grew 6.5% in April, a deceleration compared to 7.6% in March or 6.8% during the first quarter. The slowdown was broadly felt in manufacturing and utilities, which each decelerated by more than a percentage point; mining output contract at a slightly less rapid pace.
  • Total social financing levels moderated in April, falling to “only” CNY 1.39 trillion from CNY 2.12 trillion in March. The decline was spread evenly between entrusted loans, trust loans, and undiscounted bank acceptances, the three gauges of China’s often concerning shadow banking sector.
  • Chinese fixed-asset investment growth slowed to 8.9% in April, from 9.2% in March. The slowdown was mostly due to weaker industrial and construction sector investment growth, which slowed from 4.2% to 3.5% growth; services investment also slowed marginally.
  • Housing sector activity also moderated, an unsurprising development given the flurry of purchasing restrictions launched in the past month. Sales, starts, and especially floor space completed, all grew at a slower pace. The slowdown remains especially concentrated in eastern China’s developed markets, which account for about half of floor space in the country but are growing at only about half the pace of the national average or one third the pace of the western regions.
  • Retail sales growth decelerated to 10.7% growth, from 10.9% a month prior. The main drags on retail growth over the month were slower expansions in sales of communication appliances, building and decoration materials, and automobiles.
  • Services growth slowed from 8.3% to 8.1% in April, or 8.2% in cumulative terms from 8.2% in the first quarter. While only a short history of growth rates for the measure is available, it further confirms that momentum is downward in the overall economy in April.

 

Outlook & Implications:

China’s April data are unsurprising, and consistent with expectations of a steady downward glide in growth rates in the remainder of 2017. While the first quarter surprised on the upside, downside risks are significant this year, most prominently from upcoming housing sector and automotive sector corrections that still have not fully set in. Authorities will continue to stoke growth to ensure their 6.5% target is exceeded slightly, given the important and politically sensitive reshuffle of politicians planned for the fourth quarter of this year.

 

China’s domestic media is focusing heavily on the importance of the ongoing Belt & Road Forum that will conclude today (15 May), rather than the latest economic data. With its over USD 100 billion in planned spending announcements it is easy to be seduced into thinking yet another stimulus program will prop up domestic growth, although it is important to keep in mind that China’s domestic economy completed CNY 59.7 trillion (USD 8.7 trillion) in fixed-asset investment in 2016 alone. This dwarfs the decade, including the spending pipeline suggested for China’s Belt & Road Initiative going forward. In short, the data today highlight that despite China’s increasing stimulative efforts, domestic growth momentum will remain downward in the second quarter and beyond.

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