China’s factory output, investment moderate as growth dials back

Bloomberg

The world’s second-largest economy dialed back a gear as authorities
crack down on the nation’s swelling financial leverage.
Industrial output rose 6.5% last month from a year earlier, compared to 7% seen by economists and 7.6% in March. Retail sales rose 10.7% versus 10.8% seen by analysts. Fixed-asset investment excluding rural areas expanded 8.9% for first 4 months, compared to median estimate of 9.1%.
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.
“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.”