Tepid data shows China's growth is slowing again

Overcapacity sectors weighing down industrial output

BEIJING • China's economy resumed its grind towards slower growth in April, weighed by overcapacity industries such as steel and coal.

Industrial production climbed 6 per cent in April from a year earlier, down from 6.8 per cent in March and missing economists' estimates for 6.5 per cent.

Retail sales also missed analyst forecasts, rising 10.1 per cent, while fixed asset investment increased 10.5 per cent in the January-April period versus economists' expectation for 11 per cent.

After a rocky start to 2016 marked by a sliding yuan, capital outflows and tumbling shares, China's economy had stabilised and even picked up since March, led by a surge in new credit and rebound in the housing market.

A pullback in lending and yesterday's tepid industrial output data dash hopes that the economy had turned a corner. Top leaders signalled a shift away from debt- and stimulus-fuelled growth this week, stressing the need for de-leveraging, upgrading industrial capabilities and cutting excess capacity.

"All the engines suddenly lost momentum," said Mr Zhou Hao, an economist at Commerzbank AG in Singapore. "The policy tightening will be only a short-term phenomenon."

The slower industrial output was due to weak external demand, a sharp drop in mining, high energy consumption and overcapacity sectors including steel and coal, as well as seasonal effects, the National Bureau of Statistics said in a statement released after the data.

Data released on Friday showed China's broadest measure of new credit rose less than expected last month. Aggregate financing was 751 billion yuan (S$157.7 billion) in April, the People's Bank of China said, below all 26 analyst forecasts in a Bloomberg survey.

New yuan loans were 555.6 billion yuan, compared with the median estimate for 800 billion yuan.

China's central bank sought to reassure investors that monetary policy will continue to support the economy after the sharp slowdown in new credit.

The deceleration was mainly due to a pick-up in a programme to swap high-cost local government debt for cheaper municipal bonds, with no less than 350 billion yuan of such swaps conducted last month, while aggregating financing growth was affected partly by a decrease in corporate bond issuance, according to the central bank.

China's monetary policy remains prudent and policy moves must support economic growth while fully considering the impact on future prices and the need to prevent financial risks, People's Bank of China research bureau chief economist Ma Jun said in an e-mailed statement from the bank.

BLOOMBERG

A version of this article appeared in the print edition of The Sunday Times on May 15, 2016, with the headline 'Tepid data shows China's growth is slowing again'. Print Edition | Subscribe