Chinese economy slows down in April
14.05.2012/XNUMX/XNUMX - Newly released economic indicators show that the Chinese economy continued to slow in April, fueling expectations that the government will shift to looser policies to help stimulate GDP.
Rapidly cooling industrial production and fixed investment, along with disappointing trade data, are now more worries among Chinese politicians than inflation. This is causing Beijing to worry about the risks of the share price decline, experts say. "The pace of economic growth in April could slow to its lowest point this year, mainly due to weak exports and the property market," said Liu Yuanchun, deputy director of the Institute of Economics at Renmin University in Beijing.
In April, the Chinese consumer price index, a major measure of inflation, weakened to 3,4 percent yoy from 3,6 percent in March, according to data from the State Bureau of Statistics on Friday. Food prices rose seven percent year-over-year last month compared to 7,5 percent in March, as falling pork and fruit prices were offset by rising vegetable prices. A Bank of Communications research report predicts that the annual average consumer price index could fall to 3,3 percent of 5,4 percent 2011.
Inflationary pressures could ease in the first three quarters, while they could increase again in the final quarter of the year, the report said. "Inflation is likely to continue to ease, which gives ample scope for additional policy measures, such as a faster pace of fiscal spending and more supportive credit policies," said Sun Junwei, Chinese economist at HSBC Holdings.
Meanwhile, the world's second largest economy posted industrial output growth of 9,3 percent last month - the slowest in three years - while retail sales growth slowed to 14,1 percent year-over-year from 15,2 percent in March. Electricity production, an indicator of the industrial manufacturing sector, increased at the slowest rate since May 2009, by 0,7 percent year-on-year to 371,8 billion kilowatt hours. Duncan Freeman, a researcher at the Brussels Institute for China Studies, said the slowdown in the Chinese economy is partly related to the domestic situation and is strongly linked to the problems of the main markets - namely the US and Europe. "The current economic situation in Europe and the US largely explains the drop in China's exports," said Freeman.
Data released Thursday shows that both import growth and export growth slowed in April, by 0,3 percent and 4,9 percent, respectively. The fact that economic indicators are worse than expected sparked market uncertainty on Friday. The benchmark Shanghai Composite Index fell 0,6 percent to 2394, its lowest level since April 24. The slowdown in the global economy has even slowed some Chinese investors' enthusiasm to expand their business overseas, according to Shong An-An, legal advisor at the China Desk for Grant Thornton, a Dutch company. While the Chinese government encourages businesses to go abroad, there are gaps between reality and goals, Shong said. "The situation is closely related to the status quo of the economies in Europe and China."
Liu Ligang, chief economist in China at Australia and New Zealand Banking Group, said the main driver behind deteriorating business conditions was continued tight monetary policy. In April, China's new yuan loans fell to 681,8 billion yuan, or € 83,24 billion, from 1,01 trillion yuan in March, far lower than the forecasted 750 billion yuan the Chinese People's Bank announced on Friday. "The central bank could reduce the reserve rate by 91,57 basis points in May to bring more liquidity into the market and stimulate economic growth," said Liu. "Given the dire situation, the government is likely to adjust economic policies slightly to accelerate GDP growth in the second quarter," said Liu Yuanchun of Renmin University in China. "It is estimated to be higher than the first quarter's 50 percent."
Additionally, Beijing should be vigilant about electoral politics in France and Greece, said Kevin Liu, marketing director at Exclusive Analysis, a London-based consultancy. He said the uncertainties developed mainly in Europe because of the attitude of the newly elected French President Francois Hollande towards austerity measures and the discussion about whether Greece will remain in the euro area. "My suggestion is that China stimulate consumption in its domestic economy in order to gradually replace the market in the US and Europe," said Freeman.
(China Daily)
