Retail sales growth in China drops to 16-year low as trade war risks rise

BEIJING (Reuters) – China on Wednesday announced surprisingly weaker growth in retail sales and industrial production for April, prompting Beijing to take further stimulus while the trade war with the United States intensifies.

Clothing sales fell for the first time since 2009, suggesting that Chinese consumers were increasingly worried about the economy, even before a rise in US tariffs on Friday, which added pressure to the country's troubled exporters.

Overall, retail sales rose 7.2% in April from a year earlier, the slowest pace since May 2003, according to data from the National Bureau of Statistics (NBS). This underestimated the March 8.7% and the 8.6% forecast.

The data suggested that consumers were now starting to reduce their spending on consumer products, from personal care to cosmetics, and continued to avoid expensive items such as cars.

"The weakness in retail sales comes in part from the deterioration of employment and lower incomes for middle and lower income groups," said Nie Wen, an economist at Hwabao Trust.

"With regard to future policies aimed at maintaining consumption as a stabilizer of the economy, China could apply targeted tax cuts or subsidies to middle and low income groups."

Overall, the Chinese data for the month of April largely indicated a slowdown after the surprisingly optimistic March figures gave hope that the economy would become stronger and require less aid.

Industrial production growth slowed more than expected to 5.4% in April, returning to 8.5% in March, its highest level in four and a half years, which some analysts say was driven by seasonal factors. and temporary.

Analysts polled by Reuters had forecast that their production would increase by 6.5%.

Chinese exports contracted unexpectedly in April against US tariffs and weak global demand, while new orders from domestic and foreign factories remained weak.

By weighing on industrial production, motor vehicle production dropped by almost 16%. Earlier this week, industry data showed that auto sales in China fell 14.6% in April, the 10th consecutive monthly decline.

"Uncertainties continue to weigh on the performance of the economy. Tensions between China and the United States are back, as concerns about insufficient demand around the world are on the rise, "Nie said.

Nie said China may need a more comprehensive reduction in bank reserve requirements in June before a G20 summit in which presidents Donald Trump and Xi Jinping are expected to discuss trade.

"The financing gap in the market is relatively large," Nie said, adding that smaller and more targeted cuts in bank reserves may not be enough to boost growth.

At a press conference, Liu Aihua, spokesman for the statistics bureau, told reporters that there was still plenty of leeway for policies to support growth. The job should remain stable.

The unemployment rate based on a national survey in April has improved from 5.2% in March to 5.0%, but analysts are generally skeptical about China's employment data. and see an increase in layoffs if export conditions deteriorate.

INVESTMENT

In addition to concerns about domestic demand, Wednesday's data also revealed an unexpected fall in investment.

Capital investment growth slowed to 6.1% in the first four months of this year. Analysts expected an increase of 6.4%, compared to 6.3% in the first quarter of this year.

Growth in infrastructure spending remained steady at 4.4% in January-April, perhaps reflecting the slower than expected fallout from Beijing's efforts to accelerate road, rail and port projects.

China is trying to create a construction boom to revive demand, while strengthening support measures to keep cash-strapped small businesses afloat, ranging from tax cuts to financial incentives for businesses who do not dismiss staff.

Capital investment by the private sector has slowed sharply from 6.4% to 5.5%, suggesting that the sector continues to face challenges despite the central bank's efforts to secure more affordable loans to the private sector. businesses run out of cash. The private sector accounts for the majority of jobs in China and about 60% of total investment.

One of the few positives in the data was the real estate investment, an essential growth factor.

Real estate investments rose 12% in April over the previous year, unchanged from March, according to Reuters calculations. But demand for new housing remained weak, reflecting the broader economic slowdown.

COMMERCIAL TENSIONS

Washington dramatically stepped up its 10-month tariff war with Beijing on Friday by increasing Chinese trade debits worth $ 200 billion amid trade negotiations, and Trump threatened fresh levies on all remaining US imports from China. spin.

China fought back on Monday, but on a smaller scale.

Both parties seem stuck in the negotiations. But Trump softened his tone Tuesday, insisting that talks between the world's two largest economies have not collapsed.

Citi economists estimate that the US tariff increase could lose 50 basis points of China's GDP growth, reduce exports by 2.7% and cost 2.1 million additional jobs in the country, even though they are optimistic about reaching a trade deal.

Analysts at BofA Merrill Lynch estimate that a long period of moderate work would drag China's growth to 6.1% this year, while it was at its lowest level in 30 years (6, 6% in 2018).

They expect a relaxation of short-term policy, a further reduction in banks' reserve requirements and a further rise in bank lending, as well as consumer subsidies to boost sales of banks. products such as cars, home appliances and smartphones.

Some companies such as BMW [BMWG.DE] have already cut their prices after China lowered the value-added tax (VAT) as of April 1.

(The story has been rewritten to correct the reference to declining vehicle sales in paragraph 11)