China's Factory Output, Investment Moderate as Growth Dials Back

(Bloomberg) -- The world’s second-largest economy dialed back a gear in April as authorities crack down on the nation’s swelling financial leverage.

Key Points

• Industrial output rose 6.5 percent last month from a year earlier, compared to 7 percent seen by economists and 7.6 percent in March 
• Retail sales increased 10.7 percent versus 10.8 percent seen by analysts  
• Fixed-asset investment excluding rural areas expanded 8.9 percent for the first four months, compared to a median estimate of 9.1 percent

Big Picture

Growth momentum has softened after a strong first quarter as policy makers seize the window to curb shadow lending and leverage. While equity and credit markets have been shaken by the campaign, economic fundamentals remain robust as reflation boosts company profits and external demand gets a boost from a pick up in global growth. The Bloomberg monthly GDP tracker pulled back to 7.15 percent in April, from 7.64 percent in March.

Economist Takeaways

"All the data sends the same message: The economy slowed down meaningfully in April," said Larry Hu, head of China economics at Macquarie Securities Ltd. in Hong Kong. "But given that growth is still fine, in the second quarter policy makers will still focus on reducing financial risk."

Slowing growth combined with bond-market tumult "will likely throw the People’s Bank of China off its tightening trajectory," Bloomberg Intelligence economists Tom Orlik and Fielding Chen wrote in a report. "Despite the slight slowdown in retail sales, the pace of consumption growth continues to far outstrip that of household income -- an unsustainable state of affairs reflecting breakneck growth in bank loans to households."

"Slowing domestic consumption growth and softer external demand appear to have driven the slowdown," said Julian Evans-Pritchard, China economist at Capital Economics Ltd. in Singapore. "Infrastructure and property investment are holding up, helping to stave off a sharper deceleration. But we doubt the current strength in these areas can be sustained given that policy is being tightened and the property market is starting to cool."

"The April activity data barrage add to evidence China’s cyclical upswing has peaked and conditions will cool into the second half of the year," said Katrina Ell, an economist at Moody’s Analytics in Sydney. "Autos remained a major drag due to high base effects from earlier subsidies."

"Chinese growth appears to be moderating, in line with the central bank’s tweaking of market interest rates slightly higher," said Callum Henderson, Managing Director, Global Markets, Asia Pacific at Eurasia Group in Singapore. "This is good news for China as growth should be relatively strong and solid heading into the 19th Party Congress – and most likely will be. However, it suggests a modest correction going forward in the assets of those countries that export to China heading into the second half.”

The Details

• Private fixed-asset investment rose 6.9 percent in first four months while property development investment climbed 9.3 percent
• Ferrous and non-ferrous metal smelting and pressing dragged on industrial production
• China’s surveyed jobless rate fell in April from March
• China added 4.65 million new jobs from January to April
• The weaker April economic data was partly due to there being fewer work days during the period, a statistics bureau spokesman said at a briefing

--With assistance from Ailing Tan and Enda Curran

To contact Bloomberg News staff for this story: Xiaoqing Pi in Beijing at xpi1@bloomberg.net, Kevin Hamlin in Beijing at khamlin@bloomberg.net.

To contact the editors responsible for this story: Malcolm Scott at mscott23@bloomberg.net, Jeff Kearns

With assistance from Xiaoqing Pi, Kevin Hamlin