China’s economy grinds down a gear as heavy industry drags

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

Industrial production climbed 6 percent in April from a year earlier, down from 6.8% in March and missing economists’ estimates for 6.5%. Retail sales also missed analyst forecasts, rising 10.1%, while fixed-asset investment increased 10.5% in the January-April period versus economists’ expectation for 11%.

After a rocky start to 2016 marked by a sliding yuan, capital outflows and tumbling shares, China’s economy stabilised and even picked up in March, led by a surge in new credit and rebound in the housing market. A pullback in lending and Saturday’s tepid readings dash hopes the economy has turned a corner. Top leaders this week signaled a shift away from debt- and stimulus-fueled growth, stressing the need for deleveraging, 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. It pointed out that the output of the steel and coal industries both fell from a year earlier.

Retail sales were weighed down by a pullback in automobile sales, which increased 5.1% from a year earlier versus a 12.3% jump in March, the NBS said.

Private investment in fixed assets decelerated to the slowest pace since at least 2012. “Due to weak market demand, companies’ reluctance to invest and market entrance barriers, China’s private fixed-asset investment has been decelerating since the start of this year,” the statistics bureau said in a statement. “This will hurt the steady growth of investment and it deserves a lot of attention.”

It wasn’t all down arrow, with home sales continuing to grow, signalling that tightening measures designed to stem a home-price surge in some large cities have yet to slow the market’s upward momentum.

New-home sales gained 63.5% to 793.7 billion yuan (US$122bil) last month from a year earlier, according to Bloomberg calculations based on NBS data.

The increase followed a 71% surge in the previous month. – Bloomberg