Twitter
Advertisement

China economy loses more steam in April, more stimulus on the cards

"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.

Latest News
article-main
Representational image
FacebookTwitterWhatsappLinkedin

China's investment growth rate 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 measures this year.

China's central bank is expected to follow this week's interest rate cut with more stimulus in coming months, and the government may step up spending to try to energise the economy, which looks set for its worst year in 25 years.

With the official growth target of around 7% for the year looking increasingly at risk, and some pundits even raising fears of a hard landing, authorities may opt for more aggressive measures in a bid to head off job  losses and debt defaults by local governments and companies.

"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."

In addition to cutting interest rates three times in the last six months, including a move early this week, the central bank has also lowered banks' reserve requirement ratio (RRR) twice this year to spur bank lending and economic growth, and relaxed restrictions on home purchases to shore up the ailing property market, which accounts for about 15 percent of the economy.

Analysts expect policymakers to deliver more cuts in interest rates and RRR in the coming months. Policy insiders told Reuters earlier this month that the government may also ramp up state spending to shore up growth.

Kuijs has penciled in at least one more interest rate cut in the third quarter, coupled with more quantitative measures.

PROPERTY DRAG

Fixed-asset investment, a crucial driver of the world's second-largest economy, rose 12% in January-April from the same period a year ago, the slowest pace since December 2000, the National Bureau of Statistics showed on Wednesday.

Economists had expected a 13.5% gain, the same as in the first quarter of the year.

Chinese Economy 
Key numbers
  • April factory output, retail sales, investment miss expectations
  • Fixed-asset investment sees slowest growth since Dec 2000
  • Property investment growth slows to 6%
  • Raises risk that growth will drop below 7% in Q2
  • Economists say further policy easing needed
A breakdown of fixed-asset investment 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% 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% in January-April, hitting demand for everything from cement and steel to furniture and appliances, and high inventories of unsold homes are likely to stymie any meaningful improvement for much of the year.

The April data suggest conditions deteriorated further heading into the second quarter, after the economy expanded 7% in the first quarter, the slowest pace in six years.

"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%," he said, adding the economy should start to stabilise in the second half.

Industrial output rose 5.9% in April compared with the same period last year, slightly below forecasts of 6%, as weak demand, overcapacity in many industries and tougher pollution controls weighed on companies.

The latest data also suggested China's vaunted consumers are showing signs of spending fatigue. Retail sales rose 10% last month, missing expectations for a 10.5% rise and easing from March.

General Motors Co said on Tuesday it was cutting vehicle prices on 40 models in China after sales fell.

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.

Find your daily dose of news & explainers in your WhatsApp. Stay updated, Stay informed-  Follow DNA on WhatsApp.
Advertisement

Live tv

Advertisement
Advertisement