World Economy

China Growth Weakens

China Growth WeakensChina Growth Weakens

China’s economy continues to remain under pressure as latest economic indicators suggest the economy is undergoing a slump, reviving growth concerns among policymakers.

The country’s production output, retail sales, and investment all saw decelerated growth last month. National Bureau of Statistics on Saturday said in a statement that industrial production rose 6% year-over-year compared to 6.8% recorded in March, news outlets reported.

Retail sales in April climbed 10.1% from a year earlier, compared to 10.5% YoY incline in the prior month. From January till April, fixed-asset investment increased 10.5%, missing analysts’ expectation of 11%.

Analysts believe weak economic indicators are proof that recovery in the economy was not as strong as expected. The economy was in correctional phase last month after solid economic rebound in March, they add.

The Chinese economy has been under pressure over the past few months as local demand drops. Beijing has employed several stimulus measures to underpin growth in the economy but little to nothing seems to have changed, as the economy slows down further in the first quarter of the year.

  Below Estimates

China’s economy resumed its grind towards slower growth in April, weighed by overcapacity industries such as steel and coal.

After a rocky start to 2016 marked by a sliding yuan, capital outflows and tumbling shares, China’s economy had stabilized and even picked up since March, led by a surge in new credit and rebound in the housing market.

A pullback in lending and Saturday’s tepid industrial output data dash hopes that the economy had turned a corner. Top leaders signaled a shift away from debt- and stimulus-fuelled growth this week, stressing the need for de-leveraging, 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.

  New Credits

Data released 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.

New yuan loans were 555.6 billion yuan, compared with the median estimate for 800 billion yuan.

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.

  Global Slowdown

All major economies are slowing, but unlike 2008, China won’t be here to save the day. China kept its economic engine running with credit. Chinese corporations borrowed heavily to prop up economic output after 2008, spending money that they didn’t really have.

It was a good run, but the government is now realizing how dangerous credit can be.

If there’s one dangerous thing the world has learned, it was the seductive power of credit. Central banks have been following the Federal Reserve’s lead by printing money around the clock, buying up all the debt in sight.

There’s no doubt this kind of system is going to come crashing down—the only question is when.