First, China’s economy appeared to be slowing dramatically in April. Industrial production and retail sales missed expectations, primarily due to the effects from the trade war with the United States. Industrial production increased by 6.1% YoY, a significant drop from a 7.7% annual growth rate in March. The steep drop-off is a clear sign of the effectiveness of tariffs applied by the Trump administration. Combined, these tariffs have drastically reduced shipments and created significant uncertainty in the market.
Tariffs on a lot of other things from China are even higher—145%. At the same time, Beijing’s retaliatory duties skyrocket to 125%, creating a double whammy for exporters trying to survive this tricky landscape. Domestic factors sharpened the crisis. The long slide in the housing market is still weighing on consumer confidence and spending.
In April, China’s retail sales increased by 5.1%, falling short of economists’ expectations for a 6% rise. This suggests that consumers are still too nervous to spend, a nervousness no doubt exacerbated by the pressures emerging from the property sector. Spaced property investments were down by a whopping 10.3% y/y from January through April, placing even greater stress on the recovery desperately needed for overall economic growth.
Despite these challenges, China’s fixed asset investment saw a 4% increase during the first four months of the year, suggesting that some sectors are continuing to invest despite external pressures.Of course, in April we saw the CPI fall by 0.1%. This sharp decline has raised concerns over deflation and its potential impact on supply and labor markets.
“The current overall price level is low, which puts pressure on production and companies’ operations and affects jobs and incomes,” stated Fu Linghui, a spokesperson for China’s National Bureau of Statistics. He stressed the importance of fostering a moderate return of prices to maintain stability in the economy.
Economic observers agree that shocks from the outside world have, over time, become stronger, changing the external environment that China must navigate. Lynn Song, chief economist for Greater China at ING Economics, remarked, “Establishing a trough on a national level is taking some time, as the recovery of the property market remains uneven and gradual.” She noted further that tariff-related pessimism could have left even more buyers on the sidelines in April.
Louise Loo from Oxford Economics highlighted that “export-driven gains in factory output could continue given China’s manufacturing competitiveness and frontloaded orders before the end of the 90-day truce,” but cautioned that this growth comes with persistent deflationary costs.
“The Chinese government remains focused on supporting job creation and stimulating domestic demand as part of its broader economic strategy. There are still many outside unstable and uncertain factors, and the foundation for the continued recovery and improvement of the national economy needs to be further consolidated,” Fu noted.
