China’s Investment Slows as Production Trails Estimates

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A worker assembles car doors for the Geely Automobile Holdings Ltd. Emgrand EC7 sedan on the production line at the company's factory in Cixi, Zhejiang Province. Close

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Photographer: Tomohiro Ohsumi/Bloomberg

A worker assembles car doors for the Geely Automobile Holdings Ltd. Emgrand EC7 sedan on the production line at the company's factory in Cixi, Zhejiang Province.

China’s fixed-asset investment unexpectedly decelerated last month while industrial output trailed estimates, adding to concerns that the economy will fail to show much of a recovery this quarter.

Fixed-asset investment excluding rural households in the first four months of the year increased 20.6 percent, the National Bureau of Statistics said today in Beijing, compared with 20.9 percent in the first quarter. Production grew 9.3 percent in April from a year earlier and retail sales climbed 12.8 percent, according to the agency.

The data may test the new leadership’s tolerance for slower economic expansion as President Xi Jinping and Premier Li Keqiang implement policy changes to improve the quality and efficiency of growth. The central bank warned last week that while the foundation for stable growth isn’t yet solid, stimulus policies could trigger inflation.

China’s economic recovery remains weak,” said Li Wei, a Shanghai-based economist at Standard Chartered Plc. “The government will stay vigilant on local-government debt, keep property-market controls and discourage public spending. All of those measures will restrain China’s growth rebound.”

The gain in industrial output compared with the 9.4 percent median estimate in a Bloomberg News survey of 38 analysts and an 8.9 percent increase in March. The median projection for retail-sales growth was 12.8 percent after a 12.6 percent increase the previous month.

Investment Forecast

Economists estimated fixed-asset investment rose 21 percent in the first four months of the year, based on the median forecast.

Stocks in China pared losses after the report. The benchmark Shanghai Composite Index (SHCOMP) was 0.2 percent lower at the close.

Today’s data indicate that second-quarter economic growth “may be somewhat better” than the first quarter’s, though it’s “still unlikely to be much better,” said Yao Wei, China economist at Societe Generale SA in Hong Kong. “Production only had very modest improvement” excluding so-called base effects from last year’s figures, she said.

In its quarterly monetary-policy report last week, the People’s Bank of China said that the “foundation for stable economic expansion isn’t yet solid.” At the same time, the country can’t be “blindly optimistic” about the inflation outlook when uncertainties remain in areas such as property and farm-produce prices, it said.

Inflation Data

Consumer prices rose 2.4 percent in April from a year earlier, statistics bureau data last week showed, staying below the government’s 2013 target of 3.5 percent for a fourth month. Producer prices dropped for the 14th month, the longest negative streak since 2002, in a sign of overcapacity and lack of demand in some industries.

In a separate report today, China’s fiscal revenue in April rose 6.1 percent from a year earlier, while spending increased 18 percent, the Finance Ministry said. That compares with targets this year for an 8 percent advance in revenue and 10 percent for spending.

While today’s investment and industrial-production figures are “quite weak,” they aren’t “bad enough to trigger a policy easing,” Zhang Zhiwei, chief China economist at Nomura Holdings Inc. in Hong Kong, said in a note. The pickup in factory production from March’s figure reflects a distortion from April having two more working days than last year’s month, Zhang said.

Zhang maintained his forecast for 7.5 percent economic growth this quarter, down from 7.7 percent in the previous period.

Property Spending

Today’s report showed an acceleration last month in investment in real estate development. January-April spending rose 21.1 percent from a year earlier, compared with 20.2 percent in the first quarter.

Sales at large restaurants and catering businesses fell 2.8 percent in April from a year earlier, a sign that the effects of Xi’s frugality campaign on banquet spending extended from the first quarter.

Standard Chartered Plc on May 10 became the latest bank to lower its growth estimates for China, cutting is 2013 forecast to 7.7 percent from 8.3 percent. “There are few signs of renewed dynamism,” analysts including Stephen Green, head of Greater China research in Hong Kong, and Li Wei wrote in a report. “Credit growth should support near-term activity, though it raises questions about leverage, credit quality and growth sustainability in the next few years.”

Li said today that the government “will show its willingness to tolerate slower growth, and the market has to gradually accept it by lowering expectations.”

Growth Estimates

Goldman Sachs Group Inc., Royal Bank of Scotland Group Plc and JPMorgan Chase & Co. last month cut their estimates for China’s growth this year to 7.8 percent after economic expansion unexpectedly slowed. Standard Chartered estimates a further moderation in the current period to 7.6 percent.

In a sign of weakness in demand, Baoshan Iron & Steel Co. (600019), China’s biggest publicly traded steelmaker, said last week it cut hot-rolled steel prices for June delivery by 180 yuan ($29) per metric ton and cold-rolled prices by 150 yuan.

One bright spot in the data was a 72.2 percent jump last month in retail sales of gold, silver and jewelry, compared with a 26.3 percent increase in March, as consumers took advantage of gold prices off to their worst start to a year since 1982.

Elsewhere today, Australian home-loan approvals rose the most in four years in March as central bank interest-rate cuts lured buyers into the market, while New Zealand house prices in April showed the biggest annual increase since 2007. In Europe, Portugal reports April inflation, while the U.S. will see data on last month’s retail sales.

--Nerys Avery. With assistance from Zhou Xin in Beijing and Ailing Tan in Singapore. Editors: Scott Lanman, Rina Chandran

To contact Bloomberg News staff for this story: Nerys Avery at navery2@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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