Skip to main content

The Globe and Mail

Slowing Chinese economy shows signs of strain

A general view of a shipping container area at Yangshan Port of Shanghai on Friday, May 11, 2012.


A set of economic indicators as grim as the polluted Beijing summer sky is expected to bring more monetary easing from China's central bankers before the month is out.

China's once-roaring inflation continued its recent slowing, reaching a 3.4-per-cent pace in April from a year earlier, according to data released Friday. The problem is, everything else slowed as well.

Growth in retail sales and industrial output is slowing, and other data released earlier this week showed China's trade surplus has widened after both imports and exports came in lower than expected.

Story continues below advertisement

Growth in retail sales and industrial output is slowing, and other data released earlier this week showed China's trade surplus has widened after both imports and exports came in lower than expected.

With the euro-zone crisis wearing at demand for Chinese exports, and tough property market measures slowing the domestic economy and dampening consumer confidence, even China's normally robust economy is showing signs of strain.

Pressure is now mounting on policy makers to turn their focus away from managing growth while containing inflation, back toward stronger economic stimulus.

"Just about everything in China's economy seems to have gone backward in April. Growth of retail spending, investment, industrial output and imports declined. Lending slowed. On the positive side, inflation fell too. Even if it hadn't, [Friday's]raft of awful data would very likely prompt a policy response," read a note from London's Capital Economics.

Analysts are now predicting a policy response soon, and a cut of up to 100 basis points in banks' reserve requirement ratios in coming months.

"Although earlier easing policy started to work, this is not enough. Inflation is set to decline further and this will afford policy makers more room to deliver further easing. We believe that Beijing should quicken the pace of fiscal spending and support on ongoing infrastructure and public housing projects," wrote Qu Hongbin and Sun Junwei at HSBC Global Research.

"We expect Chinese growth to stabilize and gradually recover over the rest of 2012, though this forecast remains highly dependent on improved conditions in the United States and the euro area," wrote Brian Jackson at RBC in Hong Kong.

Story continues below advertisement

"With Beijing still cautious about the inflation outlook, we do not expect a big shift in policy settings, but [the latest data]boosts the chances of a near-term cut in banks' reserve requirements."

The surprising number Friday was industrial production: Although it rose 9.3 per cent in April, that was the lowest level since May, 2009, and below all forecasts.

More telling, electricity output in April was up only 0.7 per cent from a year earlier, the slowest pace outside the Chinese New Year period in almost three years. It had increased 7.2 per cent in March over the same period a year ago.

"That's really worrying, the fact it has come down to 0.7 per cent," said Alistair Thornton, China economist for IHS Global Insight in Beijing. "It is scarily reminiscent to what was happening four years ago."

The Chinese property market has also begun to drop more dramatically, though this was expected as tough government regulations on property ownership, designed to drive out speculators, have shown no signs of letup.

Home transaction values fell 13.5 per cent in the first four months of the year, compared with a year ago; real estate investment grew 18.7 per cent in that period, but was down from 34 per cent in the same period a year ago; and house sales were down 14.9 per cent in the first four months.

Story continues below advertisement

Finally, the increase in retail sales, a measure of domestic spending and consumer mood, came in at 14.1 per cent, the lowest increase since February, 2009, and also below forecasts.

"All of those are painting a really quite negative picture," Mr. Thornton said. "The new normal is not going to be a confident, sharp V-shaped recovery. It's more likely to be a grinding, volatile recovery."

Special to The Globe and Mail

Report an error
Comments are closed

We have closed comments on this story for legal reasons. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.