China’s economy slowed far more than expected in April, increasing pressure on the ruling Communist party to promote growth in the midst of its biggest political crisis in decades.
A range of official monthly data released yesterday by the government showed much weaker industrial activity, retail spending and investment than analysts and officials had predicted. These numbers, with weak trade figures released on Thursday, paint a picture of a continued deceleration in Chinese economic growth.
“Data on April spending and output put another nail into hopes that China’s economy is bottoming out,” said Mark Williams, chief Asia economist at Capital Economics. “This run of poor data will shake policy makers’ confidence and we expect it to prompt further policy easing.”
While China’s economy is still in better shape than many others, some analysts said the deterioration in April was a surprise to policy makers and suggests the slowdown is more serious than thought.
Most economists and analysts had forecast a rebound in Chinese economic activity in April but following the release of the data, they predicted Beijing would loosen monetary policy in an attempt to strengthen growth. But China’s top leaders are embroiled in the worst political infighting to hit the country since the 1989 Tiananmen Square massacre, and there are concerns among some investors that they will have difficulty forming a consensus on how best to deal with the slowdown.
The purge last month of Bo Xilai, who sat on the 25-member Communist party Politburo that effectively runs the country, has left Chinese politics in disarray, with much of the bureaucracy unsure what the final outcome of the power struggle will be.
Economic policy is nominally in the hands of Chinese premier Wen Jiabao and decisions such as whether or not to adjust interest rates are made by the State Council, or cabinet, which he heads.
But in practice, economic decisions are often debated and approved by the party’s nine-member Politburo, which insiders say has been divided by Mr Bo’s purge.
In the short term, the most likely response to the weak growth will be a cut in the proportion of deposits that banks must hold in reserve with the central bank, a move that does not need top-level political consensus and will free up more cash to lend to the real economy.
The biggest shock yesterday was the sharp slowdown in China’s industrial production, with figures showing that growth in April was 9.3 per cent compared with the same month in 2011, the weakest reading in three years and well below the 11.9 per cent increase in March.
Growth in fixed asset investment and retail sales also slowed to 20.2 per cent and 14.1 per cent from the same month a year earlier, down from 20.9 per cent and 15.2 per cent the previous month.
The disappointing readings came a day after Chinese trade data showed a slump, with imports growing just 0.3 per cent in April from a year earlier, compared with an average monthly growth rate of 25 per cent in 2011.
Bank lending in April also came in a lot lower than expected, with Rmb682bn in new loans extended for the month, compared with Rmb1,010bn in March.