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China’s recovery remains unbalanced as consumer spending slows

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China’s recovery was mixed in April, with industrial production and investment bolstered by strong exports and a hot real estate market, while retail sales missed expectations.

Industrial production rose 9.8% in April from the previous year compared to the median estimate of a 10% increase. Retail sales grew 17.7% over the period, much slower than the expected 25% increase. Investments in fixed assets rose 19.9% ​​in the first four months of the year, in line with forecasts. The unemployment rate was lower at 5.1%.

Slow retail sales

The rebound in consumption is not sustained in China

Source: National Bureau of Statistics


The data highlights that while China remains on track to meet its economic growth target of over 6% for the year, making it a global driver of commodity demand, the pace of expansion has may have already peaked as policymakers seek to cut stimulus and consumers remain cautious about spending.

“Economic growth probably peaked in the first quarter” on a quarterly basis, said Zhiwei Zhang, chief economist at Pinpoint Asset Management. “We expect growth to gradually slow down in the coming months.” An increase in new cases of Covid in China will likely warn policymakers as tightening monetary policy is likely on hold for now, he said.

The data was heavily impacted by base effects from April 2020, when China’s industrial economy reopened when the coronavirus was brought under control. On a two-year average basis, which corrects for this bias, industrial production growth has remained constant from the first quarter at 6.8%, while investment in fixed assets accelerated slightly to 3.9% against 2.9%.

However, retail sales growth moderated to 4.3% in April on a two-year average basis, from 6.3% in March, as consumption of food and beverage services both weakened, which weakened expectations that consumer demand was beginning to replace investment as the engine of growth.

Slowdown in retail sales

China’s domestic consumption weakens after stronger end of 2020

Source: National Bureau of Statistics, Bloomberg calculations


Chinese households have not yet “returned to their usual pace” due to weak income growth, said Frederic Neumann, head of the Asian economy at HSBC Holdings Plc. “If households fail to increase their spending in the coming months, the authorities may be forced to relax the reins of liquidity and investment spending to avoid a more marked slowdown in growth,” he said. he adds.

While the Chinese economy stabilized on a more solid footing in April, it still faces the pandemic and an uneven recovery globally, as well as a fragile base of recovery in the country, a the NBS said in a statement. Separate NBS report suggests housing market remains strong, with home prices rising at the fastest pace in eight months in April.

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