China April Economic Reports Signal PBOC Has More Work Ahead

Updated on
Solar Cell Production Inside A Trina Solar Ltd. Photovoltaics Plant

Solar Cell Production Inside A Trina Solar Ltd. Photovoltaics Plant

Tomohiro Ohsumi/Bloomberg

China’s economy showed little evidence of an acceleration at the start of the second quarter, with slower lending and investment data signaling that the central bank has more to do to shore up growth.

Industrial output rose 5.9 percent in April from a year earlier, after a 5.6 percent gain in March that was the weakest since 2008. Fixed-asset investment rose 12 percent, the least in almost 15 years, data from the National Bureau of Statistics showed Wednesday. The central bank said new yuan loans were 707.9 billion yuan ($114 billion) in April, less than all 36 forecasts in a Bloomberg News survey.

The weakness suggests the People’s Bank of China’s steps to free up more bank deposits for loans, and two interest-rate cuts before April, weren’t enough to stoke much of a rebound after a first-quarter economic slowdown. Premier Li Keqiang is trying to rein in past excesses -- from record credit to pollution and corruption -- while heading off a hard landing in the world’s No. 2 economy.

Policy makers unveiled further action May 10, with a third reduction in benchmark lending rates. Economists forecast more such moves.

“It’s quite clear the cuts in interest rates and required reserve ratio are not sufficient to drive a meaningful growth rebound,” said Li Miaoxian, a Beijing-based economist at Bocom International Holdings Co. The PBOC “has to expand its balance sheet to help the economy,” he said.

Retail Sales

Other data today showed retail sales rose 10 percent in April from a year earlier, compared with the median estimate of 10.4 percent in a Bloomberg survey. Fixed asset investment expanded less than the 13.5 percent median projection.

“The darkest moment of the first quarter is already behind us, but the economy is still very weak,” said Larry Hu, head of China economics at Macquarie Securities in Hong Kong. “The government will continue to add more stimulus.”

The Shanghai Stock Exchange Composite Index extended losses after the data release, closing 0.6 percent lower.

Underscoring the limited scope of monetary easing to date, data released Wednesday showed that the M2 measure of broad money supply rose 10.1 from a year earlier at the end of April, the smallest expansion on record. M2 growth was also below the government target of 12 percent for 2015.

Lending Reluctance

With non-performing loan ratios rising and pressure to participate in a debt-swap program for local authorities, banks have shown little inclination to step up new lending. Meantime, outflows of capital from abroad have tightened domestic liquidity.

Real growth has dipped below the leadership’s 2015 target of about 7 percent, according to Bloomberg’s monthly gross domestic product tracker, which pegs it at 6.4 percent for April. Bloomberg economists Tom Orlik and Fielding Chen calculate potential GDP growth at 7.3 percent -- a speed limit that’s fallen due to a shrinking working-age population and diminished scope for productivity leaps. They anticipate the rate at 6.5 percent by the end of the decade.

“A smooth slowdown is contingent on the government succeeding with its aggressive package of reforms and containing financial risks,” Orlik and Chen wrote in an outlook report this week.

Data earlier this month showed inflation remained subdued in April, giving the PBOC plenty of scope for easier monetary policy. A decline in exports in April flashed a warning that overseas demand may not hold up China’s expansion pace this year -- in part thanks to policy makers’ reluctance to let the yuan decline.

As the rate cuts and reductions in banks’ required reserve ratios take effect, liquidity should improve, and bolster the economy, Australia & New Zealand Banking Group Ltd. economists including Liu Li-Gang wrote in a note.

“Growth is likely to pick up in May and June, and we forecast second-quarter GDP growth to return to 7 percent,” the ANZ analysts wrote.

— With assistance by Xin Zhou, and Kevin Hamlin

Before it's here, it's on the Bloomberg Terminal. LEARN MORE