April data shows China’s easing behind the curve
Government, bank seen ramping up stimulus
CHINA’S money supply grew at its slowest pace on record and investment growth sank to its lowest in almost 15 years as April data showed the secondlargest economy was still losing momentum despite a concentrated burst of policy easing.
Data yesterday added to concerns that Beijing’s growth target of around 7 percent for the year is already at risk, and reinforced views that authorities need to take bolder measures to head off job losses and debt defaults by local governments and companies.
The central bank is expected to follow this week’s interest rate cut with more stimulus in coming months, while the government may ramp up spending to try to energise the economy, which looks set for its worst year in 25 years.
“It’s again worse than what most people had expected, especially on the investment side. All of this suggests that the downward pressures on growth in China are persisting, especially in the industrial part of the economy,” Louis Kuijs, the China economist at Royal Bank of Scotland in Hong Kong, said. “This type of data will motivate policymakers to further ease on the monetary and fiscal sides.”
The People’s Bank of China (PBOC) has cut benchmark interest rates three times in the past six months, including a move early this week, on top of reductions in banks’ reserve requirement ratio (RRR) and
The slowdown in China’s money supply growth
measures to shore up the ailing property market, which accounts for about 15 percent of the economy.
Kuijs has pencilled in at least one more interest rate cut in the third quarter, coupled with more quantitative measures.
Signs of deteriorating conditions abounded in the April data. Despite efforts to pump more money into the economy, money supply growth slowed to 10.1 percent from a year earlier.
Banks made 708 billion yuan (about R1 trillion) of new loans last month, about onefifth less than expected, as slowing earnings growth and rising bad loans made lenders more cautious.
Banking sources have said that some lenders are not passing on lower borrowing costs to customers, undermining official efforts to boost the economy.
Customers
For their part, companies complain they are short of customers, not credit, and thinning profit margins are making it more difficult to pay off existing debt. In addition, a sizeable amount of the loans that are being made are believed to be for refinancing, not new activity.
Policy insiders said this month that in addition to further monetary easing, the government might ramp up state spending to shore up growth.
“Such (credit) data makes it impossible for the government to find funding for the infrastructure projects it is planning,” Dariusz Kowalczyk at Credit Agricole in Hong Kong said. “It is clear that more needs to be done in terms of monetary stimulus.”
Fixed asset investment, a crucial driver of activity, rose 12 percent in the January to April period from a year earlier, the slowest pace since December 2000, the National Bureau of Statistics said.
A breakdown of the figures showed slower growth in government and private sector spending, and a drop in the mining sector. Overall spending on new projects stalled.
Property investment growth slowed to 6 percent in January to April from a year earlier, easing from 8.5 percent in the first quarter and the weakest level since 2009.
New property starts fell by 17.3 percent in January to April, hitting demand for everything. While home sales and prices might be bottoming out in big cities, analysts said high inventories of unsold houses were likely to prevent any meaningful recovery for some time.
“The property sector remains the biggest drag on the economy,” Nie Wen at Hwabao Trust in Shanghai said. “The chance of gross domestic product growth bottoming out in the second quarter (Q2) is small. We expect Q2 growth to be 6.7 to 6.8 percent,” he said, adding that activity should start to stabilise in the second half.
The latest data also suggested China’s consumers were showing signs of spending fatigue. Retail sales rose 10 percent last month, missing expectations for a 10.5 percent rise and easing from March.
That spells more bad news for the PBOC, as strength in domestic demand and the services sector have been helping to offset persistent weakness and job shedding in manufacturing. – Reuters