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China’s economy grinds down a gear as heavy industry drags
By Bloomberg -

China’s economy grinds down a gear as heavy industry drags

China’s economy resumed its grind toward slower growth in April, weighed down by overcapacity industries such as steel and coal.
Industrial production climbed 6 percent in April from a year earlier, down from 6.8 percent in March and missing economists’ estimates for 6.5 percent. Retail sales also missed analyst forecasts, rising 10.1 percent, while fixed-asset investment increased 10.5 percent in the January-April period versus economists’ expectation for 11 percent.
After a rocky start to 2016 marked by a sliding yuan, capital outflows and tumbling shares, China’s economy stabilized and even picked up in March, led by a surge in new credit and rebound in the housing market. A pullback in lending and Saturday’s tepid readings dash hopes the economy has turned a corner. Top leaders this week signaled a shift away from debt- and stimulus-fueled growth, stressing the need for deleveraging, upgrading industrial capabilities and cutting excess capacity.
"All the engines suddenly lost momentum," said 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. It pointed out that the output of the steel and coal industries both fell from a year earlier.
Retail sales were weighed down by a pullback in automobile sales, which increased 5.1 percent from a year earlier versus a 12.3 percent jump in March, the NBS said.
Slowest pace
Private investment in fixed assets decelerated to the slowest pace since at least 2012.
"Due to weak market demand, companies’ reluctance to invest and market entrance barriers, China’s private fixed-asset investment has been decelerating since the start of this year," the statistics bureau said in a statement. "This will hurt the steady growth of investment and it deserves a lot of attention."
It wasn’t all down arrow, with home sales continuing to grow, signaling that tightening measures designed to stem a home-price surge in some large cities have yet to slow the market’s upward momentum. New-home sales gained 63.5 percent to 793.7 billion yuan ($122 billion) last month from a year earlier, according to Bloomberg calculations based on NBS data. The increase followed a 71 percent surge in the previous month.
Data Friday showed China’s broadest measure of new credit rose less than expected last month. Aggregate financing was 751 billion yuan in April, the People’s Bank of China said, below all 26 analyst forecasts in a Bloomberg survey.
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 program 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.
"The recovery appears to be fragile," said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong. "The reduction in loan extension in April as well as housing tightening policy may be having some negative impact already."