China’s economic cools unexpectedly in April

The escalation in the U.S.-China trade war marks a stunning turning point in U.S.-China relations. With the impact of U.S. tariffs on the Chinese economy sinking in, Beijing will have to do a lot more to manage its public image. It wouldnt be surprising if in the days ahead we see more instances of intellectual property thefts, high risk military aggression and espionage.

On Wednesday, China reported a surprisingly weaker than expected growth in industrial output and retail sales for April, thus reinforcing expectations that Beijing will have to roll out more economic stimulus measures to mitigate the impact of the U.S.-China trade war.

Investments have also fallen short unexpectedly, which again underscores the fact that the Chinese economy is still struggling for a better footing even as a sharp hike in U.S. tariffs ratcheted up pressure on its exporters.

Growth in China’s industrial output slowed more than expected to 5.4% in April from a year earlier, pulling back from a surprisingly strong 4-1/2 year high of 8.5% in March – which a few analysts had ascribed to seasonal and temporary factors.

China’s exports shrank surprisingly in April in the face of weak global demand and strong U.S. tariffs; factory surveys suggest new export orders continue to remain sluggish.

According to data from the National Bureau of Statistics (NBS), retail sales were also lower than expected, with the headline number rising 7.2%, the slowest pace since May 2003.

When compared with March’s 8.7% and forecasts of 8.6%, the fall underscores a growing fall in consumer confidence as the economy begins to slow down and the effect of U.S. tariffs bite harder.

Earlier this week, industry data showed automobile sales have fallen by 14.6% in China in April, marking the 10th consecutive month of decline.


In the first four months of this year, investments in fixed-assets have also slowed to 6.1%. According to analysts, it is expected to rise to 6.4%, picking up from 6.3% in the first quarter of this year.

Private sector fixed-asset investment grew by 5.5% for the same period, and eased sharply from an increase of 6.4% in the January to March period. Private investment accounts for around 60% of overall investment in China.

However, growth in infrastructure spending, a key economic indicator, held steady at 4.4% on-year in the January to April period.

China is bent on trying to engineer a construction boom in order to rekindle demand, even as it steps up shore up measures to keep cash-starved smaller companies afloat, which range from tax cuts to financial incentives for firms which do not lay off staff.


According to economists at Citi, U.S. trade tariffs on China could chop off 50 basis points from its GDP growth, slash its exports by 2.7% and cost the country at least 2.1 million jobs; economists are however optimistic that a trade deal is likely to be reached eventually.

According to analysts at BofA Merrill Lynch, if Chinese President Xi Jinping were to drag the trade war over perceptions of brinkmanship, it will weigh down the Chinese economy and reduce its growth to 6.1% in 2019.

They expect more policy easing in the short-term, along with further cuts in banks’ reserve requirements and another surge in bank lending and consumer subsidies to boost sales of products including cars, smartphones and appliances.

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