China’s economy reveals some weakness ahead of Friday’s statistics

BEIJING – As China’s economy enters the second quarter of this year, several indicators point to a slowdown in future growth unless conditions improve, raising hopes for monetary policy easing.

The National Statistics Office is scheduled to release data on retail sales, industrial production and fixed asset investment for April on Friday. Analysts polled by Reuters as of Tuesday expected a slight increase compared with March.

On the same day, the Chinese government plans to issue its first super-long-term bonds (30 years) as it launches a previously announced program to provide a total of 1 trillion yuan ($138.25 billion) in funding for key strategic projects. are doing. The Ministry of Finance has not disclosed how the first tranche will be used.

Louise Lu, chief economist at Oxford Economics, said in a note on Tuesday: “The issuance will continue until November, so some of the proceeds will only be disbursed (and therefore benefit the economy) in the first half of next year. There is a high possibility.”

It expected this week’s economic data release to show “slowing economic momentum” and confirmed its expectation that the central bank would cut interest rates by the end of June.

The central government bond program was introduced as real estate continued to be affected while businesses and consumers remained largely conservative in their spending.

New lending data for April released by the People’s Bank of China over the weekend showed a sharp decline in demand, with some indicators at their lowest in at least two decades.

Analysts at Goldman Sachs and other firms were quick to point out that the past month’s numbers were influenced by changes in the way official data is calculated and a crackdown on loans used for financial purposes rather than business expansion. did.

“Some of the weakness speaks to the real demand weakness in China right now,” Hui Xiang, Goldman Sachs’ chief China economist, said in a note on Sunday.

According to official data accessed through Wind Information, outstanding Chinese renminbi loans rose 9.6% year-on-year in April, the same pace as March and the lowest since records began in 1978.

Official data accessed through Wind Information showed new bank lending to businesses and government agencies in April fell sharply from March, as did new lending to households.

What worries Clocktower Group analysts is that the 12-month moving averages of new loans in both categories are trending downward for the first time since the 2008 financial crisis.

“If the public sector does not support credit expansion in a timely manner, a sharp slowdown in growth is likely in the future as economic agents will be forced to cut consumption and investment in order to repay debt,” the company recently said. Stated. April.

On a 12-month moving average basis, the new bank lending category, which includes businesses, increased slightly in April compared to April and March, while new household loans Loans decreased.

While household lending is below that level, new business lending is still much higher than in 2019, according to the data.

A survey conducted by China Beige Book in April found that while demand in the manufacturing industry increased, corporate borrowing decreased due to the impact of the service industry. The overall decline occurred even as more loans were approved and interest rates fell, making borrowing cheaper.

M2, a measure of the money supply that includes cash, cash equivalents and certain deposits, rose 7.2% year-on-year in April, the slowest pace since 1986, according to official data accessed through Wind Information. Ta.

In a separate note on Sunday, Goldman analysts cited the People’s Bank of China’s quarterly monetary policy report, saying, “The central bank highlights the weakening relationship between economic growth and credit expansion, so we are looking forward to the future.” “As the economy moves forward, new renminbi lending and M2 growth may gradually slow further.” It was released on Friday.

“Two more RRR cuts and one policy rate cut are still expected through the remainder of this year,” the person said.

RRR refers to a bank’s reserve requirements, or the amount of cash it needs to have on hand. People’s Bank of China Governor Ban Gongsheng told reporters in March that there was room to further reduce the reserve requirement ratio.

“April’s credit numbers are disappointing, but this is largely due to regulatory changes rather than a sharp deterioration in underlying demand,” Larry Hu, Macquarie’s chief China economist, said in a note.

“Policymakers do not want another credit-driven recovery. Instead, they are happy to rely on exports and new energy sectors to boost growth, at least for now.” said. He expects exports to continue on a 5% growth trajectory this year, noting the strength of the auto sector.

Despite rising trade tensions, China’s exports are holding up. Data released last week showed exports rose 1.5% in April from a year earlier, in line with expectations, but imports were much higher than expected.

Separate figures released over the weekend showed consumer prices rose slightly in April. However, the factory price scale continued to decline.

But even as more cities ease purchasing restrictions, real estate, which once contributed to at least a quarter of China’s economy, remains a drag.

Real estate sales are increasingly moving towards the secondary market, meaning developers are not benefiting much in a market that is still “searching for the bottom,” S&P Global Ratings said in a report early last week. Stated.

S&P analysts expect China’s main housing market to contract by 16% this year.

China’s housing price index is also scheduled to be released on Friday. Looking further ahead, investors are awaiting major government meetings scheduled for July for signals on long-term economic policy.

“Separately, the People’s Bank of China has indicated that it will consider policies to help digest existing housing stock and improve the supply of new housing, with a view to stabilizing the real estate market,” Morgan Stanley analysts said. “There is,” he said.

“This reflects the message of the recent Politburo meeting on the property market and indicates that monetary policy could be used as part of a support package to help China deal with its large property inventory. That’s what we think.”

—CNBC’s Michael Bloom contributed to this report.