China rebound gets more lopsided as factories hum, consumer spending lags

“My biggest takeaway is that China is having a two-speed recovery.”

Larry Hu, head of China economics, Macquarie Group

CHINA’S retail sales grew at the slowest pace since 2022 while industrial production accelerated, highlighting the unbalanced recovery of the world’s second-largest economy.

Consumer spending expanded 2.3 per cent in April, the National Bureau of Statistics (NBS) said on Friday (May 17). That’s down from 3.1 per cent in March and worse than the 3.7 per cent predicted by economists in a Bloomberg survey. Industrial output rose a faster-thanexpected 6.7 per cent.

China’s export-driven manufacturing sector has powered the world’s No 2 economy this year, as a drawn-out housing crisis weighs on domestic demand. Exports returned to growth in April, but consumer prices remained sluggish. Credit shrank for the first time since 2005, underscoring weak sentiment.

“My biggest takeaway is that China is having a two-speed recovery,” said Larry Hu, head of China economics at Macquarie Group.

He said the mixed data may spur the government to step up support on the margin but will not lead to any major shift.

Chinese stocks wiped out earlier advances after the data release. The onshore benchmark CSI 300 Index traded down 0.3 per cent and the Hang Seng China Enterprises Index fell 0.1 per cent.

Other data published on Friday also showed a diverging economy. Fixed-asset investment grew 4.2 per cent in the first four months of year, a mild slowdown from the previous numbers. But investment in property development plunged 9.8 per cent.

The urban jobless rate was 5 per cent, down from 5.2 per cent as of the end of March.

“Overall the economy operated stably in April,” NBS spokesperson Liu Aihua said in a briefing, attributing the slowing indicators to base and seasonal effects. “New growth drivers are maintaining a fast growth and the economy continued its recovering and improving trend.”

The bureau cited the “increasingly complex, grim and uncertain” external environment among challenges ahead and called for the early implementation of existing macroeconomic policies.

The anaemic consumption growth may add urgency to Beijing’s plan to encourage companies and households to upgrade their machines and appliances. Authorities began to roll out modest subsidies late last month across cities, including some to help fund car purchases.

“The effect of the new-for-old programme for consumer goods is yet to kick in,” said Bruce Pang, chief economist for Greater China at Jones Lang Lasalle, adding that the uncertain economic outlook may deter spending. “In general, consumers’ expectations are yet to turn the corner.”

Auto sales were one of the biggest drags on spending, sliding 5.6 per cent from a year earlier in the deepest singlemonth drop in almost two years. China’s carmakers are engaged in a price war that may be encouraging consumers to delay purchases.

Sales of clothing, shoes, hats and textile declined 2 per cent from a year earlier, the first monthly contraction since the end of 2022.

President Xi Jinping’s government has signalled more support is coming. Beijing will start selling its one trillion yuan (S$190 billion) ultra-long special sovereign bonds Friday, which could fund infrastructure spending critical to growth. That’s spurred expectations of monetary easing to help banks buy the notes.

China is also mulling a plan for local governments to snap up millions of unsold homes, Bloomberg earlier reported. Top leaders previously hinted at more stimulus for the property sector, vowing to study measures to reduce inventory.

“Domestically, property remains the weakest link,” said Raymond Yeung, chief greater China economist at Australia & New Zealand Banking Group. “Obviously, the political leadership addresses the problem by digesting the inventory. How much the efforts will stimulate household appetite remains questionable.”

Other risks remain. The Communist Party’s focus on ramping up China’s clean energy sectors has stoked tensions overseas, with the US and European Union complaining a deluge of cheap goods are threatening jobs in their domestic markets.

The Biden administration has unveiled a 100 per cent tariff on electric vehicles.