China Economy Loses More Steam In April, Further Stimulus On The Cards
China’s money supply grew at its slowest pace on record and investment growth sank to its lowest in nearly 15 years as April data showed the world’s second-largest economy was still losing momentum despite a concentrated burst of policy easing.
Wednesday’s data added to concerns that Beijing’s growth target of around 7 percent for the year is already at risk, and reinforced views that authorities need to take bolder measures to head off job losses and debt defaults by local governments and companies.
The central bank is expected to follow this week’s interest rate cut with more stimulus in coming months, while the government may ramp up spending to try to energize the economy, which looks set for its worst year in 25 years.
“It’s again worse than what most people had expected, especially on the investment side. All of this suggests that the downward pressures on growth in China are persisting, especially in the industrial part of the economy,” said Louis Kuijs, China economist at Royal Bank of Scotland in Hong Kong.
“This type of data will motivate policymakers to further ease on the monetary and fiscal sides.”
The People’s Bank of China (PBOC) has cut benchmark interest rates three times in the past six months, including a move early this week, on top of reductions in banks’ reserve requirement ratio (RRR) and measures to shore up the ailing property market, which accounts for about 15 percent of the economy.
Kuijs has penciled in at least one more interest rate cut in the third quarter, coupled with more quantitative measures.
Signs of deteriorating conditions abounded in the April data.
Despite efforts to pump more money into the economy, money supply growth slowed to 10.1 percent from a year earlier.
Banks made 708 billion yuan ($114.11 billion) of new loans last month, about one-fifth less than expected, as slowing earnings growth and rising bad loans made lenders more cautious.
Banking sources have told Reuters that some lenders are not passing on lower borrowing costs to customers, undermining official efforts to boost the economy.
For their part, companies complain they are short of customers, not credit, and thinning profit margins are making it more difficult to pay off existing debt. In addition, a sizeable amount of the loans which are being made are believed to be for refinancing, not new activity.
Policy insiders told Reuters earlier this month that in addition to further monetary easing, the government may also ramp up state spending to shore up growth.
“Such (credit) data makes it impossible for the government to find funding for the infrastructure projects it is planning,” said Dariusz Kowalczyk, a senior economist at Credit Agricole in Hong Kong.
“It is clear that more needs to be done in terms of monetary stimulus.”
Fixed-asset investment, a crucial driver of activity, rose 12 percent in January-April from a year earlier, the slowest pace since December 2000, the National Bureau of Statistics said.
A breakdown of the figures showed slower growth in both government and private sector spending, and a sharp drop in the mining sector. Overall spending on new projects stalled.
Property investment growth slowed to 6 percent in January to April from a year earlier, easing from 8.5 percent in the first quarter and the weakest level since 2009.
New property starts fell by 17.3 percent in January-April, hitting demand for everything from cement and steel to furniture and appliances. While home sales and prices may be bottoming out in big cities, analysts said high inventories of unsold houses are likely to prevent any meaningful recovery for some time.
“The property sector remains the biggest drag on the economy,” said Nie Wen, an economist at Hwabao Trust in Shanghai.
“The chance of GDP growth bottoming out in the second quarter is small. We expect Q2 growth to be 6.7-6.8 percent,” he said, adding activity should start to stabilize in the second half.
The latest data also suggested China’s vaunted consumers are showing signs of spending fatigue. Retail sales rose 10 percent last month, missing expectations for a 10.5 percent rise and easing from March.
General Motors Co said on Tuesday it was cutting vehicle prices on 40 models in China after sales fell.
That spells more bad news for the PBOC, as strength in domestic demand and the services sector have been helping to offset persistent weakness and job shedding in manufacturing.
Other data last week showed weaker-than-expected exports, imports and inflation, highlighting that China’s economy is under persistent pressure from softening demand at home and abroad.
“Today’s data do not reflect the impact of easing (in mid-April and May). However, it is clear that economic activity has continued to decelerate and policymakers are likely still behind the curve,” HSBC economist Julia Wang said in a research note.