China’s economic activity weakens amid tariff war

Beijing: China’s factory output and consumer spending weakened in April as a tariff war with Washington intensified, adding to pressure on Beijing to shore up shaky economic growth.

Wednesday’s unexpectedly weak data prompted suggestions Beijing will needs to boost stimulus spending and bank lending to hit this year’s official economic growth target of 6 per cent to 6.5 per cent.

President Xi Jinping’s government has expressed confidence the economy can withstand US tariff hikes in their fight over Chinese technology ambitions and other trade irritants. But forecasters say damage might spread beyond export-driven manufacturing industries if consumer and business confidence suffers, depressing spending and investment.

Consumer demand is “softening at a time when the export sector is taking a big hit” from US tariff hikes, Rajiv Biswas of IHS Markit said in a report.

“Chinese policymakers will therefore need to roll out further fiscal and monetary policy stimulus,” said Biswas.

April’s growth in factory output decelerated to 5.4 per cent over a year earlier from March’s 8.5 per cent growth, according to the National Bureau of Statistics.

Chinese economic growth held steady in the latest quarter at 6.4 per cent over a year earlier. But that was supported by higher government spending and bank lending to reverse an economic slowdown.

President Donald Trump’s tariff hikes on Chinese imports have been hard on manufacturers.

The escalating dispute also is unnerving Chinese consumers, depressing domestic demand.

Forecasters say a US tariff increase on $200 billion of Chinese imports that took effect Friday could trim economic growth by 0.5 percentage points, stalling a recovery that appeared to be gaining traction.

They say the loss could widen to 1 percentage point if both sides extend penalties to all of each other’s goods. That would push annual growth below 6 per cent, raising the risk of politically dangerous job losses.

“Policymakers are likely to step up stimulus again, mainly through pushing banks to make more loans and ramping up fiscal spending,” Macquarie Bank said in a report.

It warned of “rising volatility” in financial markets due to uncertainty about trade and economic growth.

“Things might have to get worse first to convince politicians to be realistic and get things done,” said the report.
Retail sales

Retail sales growth fell to 7.2 per cent over a year ago from the previous month’s 8.7 per cent. That’s a setback for Chinese leaders who want to promote self-sustaining economic growth based on domestic consumption instead of trade and investment.

China reported surprisingly weaker growth in retail sales and industrial output for April on Wednesday, adding pressure on Beijing to roll out more stimulus as the trade war with the United States escalates.

Clothing sales fell for the first time since 2009, suggesting Chinese consumers were growing more worried about the economy even before a US tariff hike on Friday heightened stress on the country’s struggling exporters.

The data suggested consumers were now beginning to cut back spending on everyday products such as personal care and cosmetics, while continuing to shun more expensive items such as cars.

“Weak retail sales partially stemmed from a deterioration in employment and declining income of the middle-and-low income groups,” said Nie Wen, an economist at Hwabao Trust.

“In terms of future policies to keep consumption as the stabiliser of the economy, China might roll out targeted tax cuts or subsidies to the middle-and-low income groups.”

As a whole, Chinese data for April largely pointed to a loss of momentum, after surprisingly upbeat March readings had raised hopes the economy was slowly getting back onto firmer footing and would require less policy support.