Retail sales growth in China reaches 16-year low, as trade war risks increase

BEIJING (Reuters) – China on Wednesday announced surprisingly weaker growth in retail sales and industrial production, putting pressure on Beijing to intensify its recovery from the intensification of the war. with the United States.

Clothing sales fell for the first time since 2009, suggesting that Chinese consumers were increasingly concerned about the economy, even before the US tariff hike on Friday eased tensions on 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 everyday consumer goods such as personal care and cosmetics, while continuing to avoid more 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 April largely indicate a slowdown, after the surprisingly optimistic March readings gave hope that the economy would become stronger and require less support from the government.

Industrial production growth slowed more than expected to 5.4% in April, returning to a 4.5-year high in March (8.5% in March), which analysts say was boosted by seasonal and temporary factors.

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

Motor vehicle production fell nearly 16% due to weaker demand. Sedan production fell 18.8%, the largest decline since September 2015. Industry statistics show this week that auto sales fell 14.6%, a 10th consecutive monthly decline.

Chinese exports also experienced an unexpected contraction in April against US tariffs and weak global demand, while new orders from domestic and foreign factories remained slow.

"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 funding gap in the market is relatively large," said Nie, adding that smaller, more targeted reductions in bank reserves may not be enough to drive stronger 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.

Growth in capital investment slowed to stand at 6.1% in the first four months of this year, exceeding expectations of a slight increase to 6.4%.

Growth in infrastructure spending remained steady at 4.4 percent, with the marked slowdown in cement production probably reflecting the slower than expected fallout from Beijing's efforts to accelerate road and rail projects.

China is trying to create a boom in the construction sector, although it is stepping up its efforts to ease the pressure on small businesses, ranging from tax cuts to financial incentives for companies that do not lay off staff.

However, capital investment by the private sector slowed sharply from 6.4% to 5.5%, suggesting that the sector continues to face challenges. 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 in April rose 12% over the previous year, unchanged from March, according to Reuters calculations. However, demand for new homes remained weak, which weighed on sales of appliances and furniture.

COMMERCIAL TENSIONS

Washington dramatically stepped up its 10-month tariff war with Beijing on Friday by increasing the levies on the $ 200 billion worth of Chinese goods being negotiated, and Trump has threatened fresh levies on all US imports from China, resulting in a a fall in global financial markets.

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 caution would reduce 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 have already lowered their prices after China lowered the value-added tax (VAT) from April 1st.

"We have every confidence in China's economic prospects," said Geng Shuang, spokesman for the Chinese Foreign Ministry, during a daily press briefing.

"Protectionist measures and intimidation measures will have an influence on the Chinese economy, but they can be completely overcome If some people do not want to do business with China, others will fill naturally this lack. "