China Slowdown Deepens
China’s economic slowdown deepened with unexpected decelerations in industrial-output and investment growth and a decline in home sales, testing policy makers’ reluctance to step up monetary stimulus.
Factory production rose 8.7 percent in April from a year earlier, the National Bureau of Statistics said in Beijing, compared with the 8.9 percent median estimate of analysts surveyed by Bloomberg News. Fixed-asset investment increased 17.3 percent in the first four months of the year, the slowest for the period since 2001, and home sales fell 9.9 percent.
The figures signal risks are increasing that China will miss the year’s expansion goal of about 7.5 percent, as the government’s efforts to counter the slowdown, including tax breaks and spending on railways and housing, have yet to gain traction. The central bank said today it told banks to approve home mortgages in a timely manner, amid a cooling in the property market.
“If the government wants to keep the growth rate around 7.5 percent, the next step is definitely substantial easing in monetary policy,” said Xu Gao, chief economist at Everbright Securities Co. in Beijing, who formerly worked at the World Bank. He said he expects an across-the-board cut in banks’ reserve-requirement ratio by the end of June.
Factory-production growth compared with an 8.8 percent increase in March and was the slowest since 2009, excluding January and February data that are distorted by the shifting timing of the Lunar New Year holiday. Retail sales advanced 11.9 percent in April from a year earlier, compared with the 12.2 percent median projection of analysts and the same gain in March.
The median estimate for January-to-April expansion in fixed-asset investment excluding rural households was 17.7 percent, after a 17.6 percent rise in the first three months of this year.
The value of homes sold declined 18 percent in April from the previous month, according to the difference between statistics-bureau data for the first four months of the year and the first quarter.
It’s time for the central bank to lower banks’ reserve-requirements and prime lending rates, Australia & New Zealand Banking Group Ltd. economists led by Liu Li-Gang in Hong Kong said in a note. “If the government still views that achieving a 7.5 percent growth target is important for its credibility, China’s monetary policy will have to play its necessary role by easing further in order to help pull the economy out of a state of lethargy,” the analysts wrote.
The People’s Bank of China told officials from 15 banks yesterday that they should approve and distribute qualified home mortgages in a timely manner, according to a statement on the central bank’s website. China should set first-home lending rates appropriately and give priority to the needs of families buying first homes, the PBOC said.
President Xi Jinping said last week that the nation needs to adapt to a “new normal” of slower growth. China’s growth fundamentals haven’t changed and the country is still in a “significant period of strategic opportunity,” Xi said in a Xinhua News Agency report published May 10. At the same time, the government must prevent risks and take “timely countermeasures to reduce potential negative effects,” he said.
The government in early April rolled out tax breaks and sped up spending on infrastructure and social housing to sustain growth. Analysts forecast expansion of 7.3 percent in 2014, which would be the slowest in 24 years, based on the median estimate in a Bloomberg survey last month.
“We do not expect any major new measures, but there should be some further policy fine-tuning to stimulate aggregate demand,” Dariusz Kowalczyk, senior economist and strategist at Credit Agricole SA in Hong Kong, said in a note.
Premier Li Keqiang said last week in a speech in Nigeria that China has the confidence and capability to achieve this year’s economic-growth goal and maintain medium- to high-speed expansion in the long run.
A property-market slump, including a 22 percent drop in new building construction in the first four months of the year, threatens to intensify the economic slowdown and add challenges for the government in achieving its expansion goal.
The government’s “mini-stimulus has not yet turned around the growth momentum,” and the government may ease credit by loosening restrictions on lending to homebuyers and local-government financing vehicles, Wang Tao, chief China economist at UBS AG in Hong Kong, said in an e-mail.
The most important figures today are the ones showing a “continued decline in property sales and new starts,” Wang said. “The latest data are indeed worrisome.”
China’s broadest measure of new credit fell in April as authorities extended their campaign to tame financial risks, central bank data showed yesterday. Statistics-bureau data showed last week that consumer inflation moderated to an 18-month low in April and the producer-price index extended the longest stretch of declines since a 31-month slide that began in 1997, giving authorities more room to ease credit if needed.
Not all manufacturers’ difficulties are related to the economic slowdown. Shares of Chinese carmaker Great Wall Motor Co. (2333) fell 17 percent in Hong Kong on May 9, the biggest drop since October 2008, after suspending sales of a new model following customer complaints of unusual transmission noises.
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