China's Economy Slowed in April in 'Turning Point'

By Mark Magnier Features Dow Jones Newswires

China's economic activity weakened more than expected last month on flagging factory demand, part of an anticipated gradual slowdown in the world's second-largest economy for the rest of 2017.

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Value-added industrial output, a rough proxy for economic growth, rose by 6.5% in April from a year earlier, the National Bureau of Statistics said Monday. The number was more than a percentage point under March's rise and well below what many economists had predicted.

Fixed-asset investment, money used to buy and build machinery, buildings and other fixed facilities, grew 8.9% in the first four months of 2017 from a year earlier. That was slower than expected and a bit less than the January-March period. Retail sales grew 10.7% in April on year, a slight slowdown from March's increase

"The data was all weaker than in March," said Standard Chartered Bank Ltd. economist Ding Shuang, "April is likely to be the turning point for the rest of the year."

The weaker April data dovetails with other signs that China's massive economic engine is losing steam after achieving 6.9% growth in the first quarter. Industrial metal prices have fallen in recent weeks; auto sales declined at twice the pace in April as in March; Official purchasing managers' indexes weakened last month; and inventory restocking has slowed.

Property sales also decelerated sharply in April year on year, increasing at their slowest pace in over two years, and construction starts weakened.

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Still, most economists believe China can achieve its growth target of 6.5% this year as momentum from the year's strong start helps prop up the economy.

Despite April's weakening data, Beijing is grappling with two thorny structural problems: soaring property prices and debt levels after years of fiscal spending and easy-money policies. To confront the risks associated with them, economists said they expected Beijing to continue tightening monetary policy gradually provided growth doesn't slow precipitously or signs of systemic risk increase. "I don't think there's any panic to shift policy," Mr. Ding added.

At an infrastructure summit in Beijing on Sunday, Premier Li Keqiang said that China is capable of maintaining financial market stability and warding off regional and systemic financial risks while maintaining steady growth, according to the Xinhua News Agency.

A spokesman with the statistics bureau told reporters Monday that China's economic fundamentals are stable and remain largely unchanged.

But some companies are feeling an economic slowdown, at least in some sectors.

Taihao Stainless Steel Manufacturing Co., a maker of locks and door handles based in the eastern city of Zhejiang, said it hasn't been able to raise prices to compensate for higher wage and commodity costs given stiff competition.

"Business isn't going well, we've been losing money since last year and I'm quite worried," said Wang Zhenzhou, the company's general manager. "The global economy doesn't look great and global politics aren't stable. Who knows what will happen in coming months."

The April slowdown in fixed-asset investment in infrastructure, manufacturing and private investment was partly the result of government efforts to stem debt by raising short-term interest rates in the interbank and in nonbank sectors of the financial system, economists said.

These people said they expected tighter monetary policy and a weakening property market to continue weighing on growth this year. China in recent months has imposed purchase restrictions on home buyers in major markets to contain speculators. These downdrafts, they say, will be offset somewhat by strong fiscal spending, recovering exports and solid investment in services industries, including education, health care and scientific research.

Meanwhile, new loans in local currency rose in April. But economists attributed this to companies rushing to borrow in advance of expected further interest-rate increases. UBS Group AG said in a report that monetary-policy tightening is likely to continue "until China's growth momentum weakens much more or earlier than the government's expectation."

Retail sales slowed in April as the impetus from last year's tax breaks on fuel-efficient vehicles wore off and as spending on furniture and renovation services ebbed on weaker property sales.

Investment in commercial and residential real estate edged up as some developers bet that demand will remain strong despite recent government sales restrictions.

Pei Li and Liyan Qi contributed to this article.

Write to Mark Magnier at mark.magnier@wsj.com

(END) Dow Jones Newswires

May 15, 2017 01:10 ET (05:10 GMT)