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No doubt now that China’s economy has hit the wall

The trade data for April told the story, the inflation data for the same month, confirmed the story and now China’s final data dump for the month covering retail sales, investment (especially in property) and factory output have put beyond any doubt that China’s economy remains in a very low gear.

The data showed a slower rate of growth in exports and a deeper fall in imports, while inflation showed consumer prices on the edge of deflation and producer prices sliding deeper into deflation.

New loan data showed a drop in lending, car sales were static, although sales of new energy vehicles were higher.

While headline unemployed eased marginally to 5.2% from 5.3% in March, youth unemployment rose in April to an all-time high of 20.4%, from 19.6% in March and that’s a concern because that figure is closely watched (especially social media) by the Communist party Government of President Xi Jinping for signs of unrest.

And on Tuesday the last data drop for the month showed gains, but they were well under the forecast pace.

Retail sales jumped 18.4%, accelerating from a 10.6% increase in March and the fastest since March 2021. Retail sales rose 8.5% in the four months to April this year but that is compared to the weak first four months of 2022 when Covid was a concern.

Still, the sales jump was slower than the 21% growth that analysts had forecast, and the comparative month was slap-bang in the middle of the first round of intense lockdowns a year ago that saw the huge city of Shanghai lockdown as well as a number of other smaller cities.

Industrial production rose 5.6% year on year in April, well short of the optimistic 10.9% forecast but ahead of the 3.9% rise in March. Steel production fell, though.

Fixed-asset investments were up 4.7% year over year in the four months to April, down from the 5.1% rate in the January-March period. It fell 0.6% month-on-month in April, a much steeper fall than the 0.25% drop from February to March

NAB Senior International Economist, Gerard P Burg summed it up in his monthly commentary yesterday after the data had been released “Base effects inflate growth in April; still waiting on demand to recover.”

“While several key indicators accelerated in year-on-year terms in April, these measures were inflated by the impact of base effects – with April 2022 a particularly weak month given the COVID-19 lockdowns that severely impacted Shanghai and hit a range of other cities as well.

“When these were stripped away, the big picture is of an economy where domestic demand is still yet to fully recover. Overall, nothing in this month’s data has us changing our views – we see China’s economy expanding by 5.6% in 2023, 4.5% in 2024 and 4.8% in 2025,” he wrote on Tuesday afternoon.


Two examples underline the less than convincing pace of growth and activity across the Chinese economy.

Property has long been the main driver of the economy, dragging steel concentre/cement, wood and building materials with it. Property has not recovered and while steel output did well early in the year, April saw it ease in a portent of what is to come.

National Bureau of Statistics figures show that spending in real estate development fell 6.2% in April, sharper than the 5.8% drop in the January-March period, underlining the continued weakness in property/housing that just won’t rebound.

Investment in the property sector tumbled 16.2% year-on-year last month after a 7.2% drop in March, according to Reuters.

And China’s crude steel output in April fell 3.2% from March and 1.5% from April of 2022 as steel mills cut production to try and protect margins,

China reported production of 92.64 million tonnes of crude steel last month, according to the National Bureau of Statistics (NBS) showed. That compares with 95.73 million tonnes produced in March and 92.78 million tonnes in the same month in 2022.

In the four months to April, crude steel production totalled 354.39 million tonnes—the highest since 2021 and up 4.1% year-on-year, but well down the 6.1% in the first three months of this year.

“Today’s weaker-than-expected data show how difficult it is to keep the growth engine running after restarting it,” said Bruce Pang, chief economist at Jones Lang Lasalle.

“China will continue to deliver strong year-on-year growth of activity data in the second quarter on the back of a low base, but at a slower quarter-to-quarter pace than the first quarter as the recovery is losing steam.”

China’s central bank kept its key interest rate unchanged on Monday as expected, but markets are betting on more monetary easing in the coming months.