September 22, 2023

China Data Show Uptick but Fail to Impress

HONG KONG — Chinese factory activity and retail sales picked up a notch in April, according to data released Monday, regaining some steam from weak showings the previous month. But expansion remained underwhelming, analysts said, and underlined that the once red-hot Chinese economy is in the throes of a long-term transition toward slower growth.

Industrial output, the data showed, expanded by 9.3 percent from April last year, compared with the 8.9 percent reading in March, while retail sales grew 12.8 percent, from compared with 12.6 percent in March. Fixed-asset investment, an important engine of economic growth, disappointed, with growth of just 20.6 percent in the first four months of this year, data also released on Monday showed.

Analysts cautioned that the improvements did not represent a substantive pickup in growth and that the momentum in the Chinese economy remained muted. “This is not the start of a rally, it is a sputtering whimper as momentum continues to fade,” Xianfang Ren and Alistair Thornton, economists at IHS Global Insight in Beijing, said in a research note. Although they stressed that “fading momentum is not the same as collapsing growth” and that the government is likely to be able to engineer full-year gross domestic product growth of more than 7.5 percent this year, they added, “we feel the risks remain firmly on the downside.”

The figures out Monday were the latest of a series of disappointing indicators from the Chinese economy in recent weeks. Data released last month showed the economy had expanded by 7.7 percent in the January-March quarter, compared with the same period last year – far less than the 8 percent that analysts had expected. Two surveys of purchasing managers in the manufacturing sector showed that April activity was disappointing, thanks in large part to weakness in new orders for exports. And last week, the Canton Fair, China’s biggest export event, announced that export orders placed at the spring session had fallen 1.4 percent from a year ago.

In part, the weakness stems from the euro zone’s festering debt crisis and austerity measures, which have eroded the ability and willingness of European customers to spend, thus denting exports from China. Rising wages in China and a gradually appreciating currency also have started to erode the country’s international competitiveness.

China is putting its own brakes on the economy with reforms that are likely to ensure that the double-digit expansion rates seen over much of the past three decades are now a thing of the past. Aware that the economy cannot continue to grow on the back of exports and heavy industry alone, Beijing has begun to steer China toward a growth model that is based on domestic demand and urbanization. While this should help raise living standards and productivity, it will also mean less fast-paced growth, analysts say.

At the same time, Beijing is trying to keep a lid on risk factors, like the expansion in local government debt, which some analyst fear could turn sour, and shadow banking activities, which have been an important source of funding but are relatively nontransparent, loosely regulated and carry elevated credit risk.

Moody’s underlined the concerns about shadow banking in a report released on Monday. The credit ratings agency welcomed recent regulatory steps to tighten controls and restrict the growth of shadow banking, but it said that “the opacity associated with shadow banking products and the threat of loss and contagion outweigh their potential benefits in terms of diverting riskier borrowers from the formal banking system.”

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