China's April data reveals signs of weak economic performance
**Abstract**
Disappointing data from China’s manufacturing and property sectors is signaling deeper economic challenges, potentially forcing the government to take more aggressive measures to stimulate growth. Economists had anticipated a sharp slowdown in the first quarter of 2014, as this could provide the government with an opportunity to meet its annual growth target of 7.5%. However, recent reports have shown that the real estate sector’s decline is having a ripple effect across key economic indicators.
The April figures revealed that the slowdown in the housing market has begun to impact industrial output, retail sales, and investments in machinery and land. All these metrics have seen slower growth compared to the same period last year, indicating a broader economic drag. Liu Ligang, an economist at ANZ Bank, warned that the situation is more serious than it appears, suggesting that China’s economic activity may still be at a low point rather than recovering.
If the government remains committed to its 7.5% growth target, this data serves as a clear warning for policymakers to act decisively. In response, some local governments have already started to ease previous property market restrictions, such as expanding housing purchase rights to nearby residents and relaxing rules for foreign buyers.
Real estate-related spending, including furniture and property management fees, accounts for about 25% of China’s economy. This high exposure means that a downturn in the sector can trigger a chain reaction across the entire economy. Wang Tao from UBS highlighted that real estate risks are among the most pressing issues facing China this year.
According to the National Bureau of Statistics, residential sales dropped by 9.9% year-on-year in the first four months of 2014, reaching RMB 1.53 trillion (about $245.6 billion), a sharper decline than the 7.7% drop recorded in January-March. Meanwhile, real estate investment grew by 16.4%, but the pace slowed from 16.8% in the first quarter.
As banks continue to tighten mortgage policies, demand for housing has cooled in many cities, with buyers expecting further price cuts and adopting a wait-and-see approach. Analysts believe that the weak performance in industrial output, investment, and real estate could push the People's Bank of China to lower reserve requirements for commercial banks in the second quarter.
Although the second quarter typically sees stronger growth due to increased investment after winter, the current data suggests that the economy is struggling to gain momentum. Industrial added value rose by 8.7% in April, slightly slower than March’s 8.8%. Fixed asset investment grew by 17.3% year-on-year, down from 17.6% in the first quarter. Retail sales also slowed, rising 11.9% in April, compared to 12.2% in March.
To counteract the slowdown, Chinese leaders introduced a series of "micro-stimulus" measures in February, including tax cuts for small businesses and increased infrastructure spending. While these policies are seen as more targeted and less risky than large-scale stimulus, some analysts argue that they are not sufficient to offset the underlying weakness in the economy.
Wang Tao from UBS noted that the recent data shows the micro-stimulus measures have yet to deliver meaningful results. As the economy continues to face headwinds, the pressure on policymakers to respond effectively is growing.
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