China’s economic recovery is patchy as factory output rises and retail sales lag

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Industrial production in China rose more than expected last month, but retail sales grew more slowly, a sign that weak consumer confidence weighed on a recovery in the world’s second-largest economy.

Industrial production grew at an annual rate of 6.7 percent in April, official data from the National Bureau of Statistics showed on Friday, surpassing the 5.5 percent forecast from economists polled by Bloomberg and the 4.5 percent growth in March.

However, retail sales rose only 2.3 percent from a year earlier, far behind analyst forecasts of 3.7 percent and down from 3.1 percent growth in March. This indicates that authorities will have to step up their efforts to stimulate domestic consumption.

China’s economy has shown mixed signs of recovery in recent months, with exports returning to growth in April but domestic sentiment struggling amid a deep slump in the real estate sector.

The government has also signaled its willingness to step up stimulus efforts, with the People’s Bank of China set to begin selling Rmb1tn ($140 billion) of ultra-long bonds on Friday. Ahead of the sale, a government adviser said the bonds aimed to “fully leverage the crucial role of public investment in supporting economic growth.”

China’s cabinet, the State Council, also announced it would hold a meeting on Friday afternoon to address problems in the housing sector, which has suffered a years-long slowdown despite numerous initiatives to support debt-ridden developers.

China’s benchmark CSI 300 index of Shanghai- and Shenzhen-listed stocks fell 0.2 percent, while the Hang Seng Mainland Properties index, a basket of Hong Kong-listed developers, fell as much as 0.9 percent before finally closing at 0. rose 4 percent. cents.

Chinese policymakers are increasingly relying on industrial investment to offset lagging growth in other sectors and take pressure off the ailing real estate market and deeply indebted local governments. High-tech industrial production was a bright spot in the April figures, growing by 11.3 percent compared to a year earlier.

But industrial policy is fueling trade tensions with the US and EU, China’s main export markets, which have accused Beijing of pursuing unfair trade practices by fueling overcapacity and dumping excess cheap goods into its markets.

U.S. President Joe Biden this week sharply raised tariffs on $18 billion of Chinese imports ranging from electric vehicles to solar cells in a pre-election bid to protect domestic jobs. The EU has also opened anti-subsidy investigations into China’s EV, wind turbine and solar panel industries.

China has warned it will respond “decisively” to US tariffs and accused Washington of violating World Trade Organization rules.

Car production rose 16.3 percent in April from a year earlier, but sales fell 5.6 percent, data that “further fuels the flames” of Chinese overcapacity accusations, said Lynn Song, chief economist for Groot -China at ING. He added that consumption growth this year is “likely to remain subdued” as consumer confidence remains gloomy.”

In other data released on Friday, the NBS said property prices in so-called prime cities fell 2.5 percent year-on-year in April. Prices also fell compared to a month earlier, by 0.6 percent, a decrease of 0.5 percentage points compared to March.

Fixed asset investment, meanwhile, grew at an annualized rate of 4.2 percent in the January-April period, lagging Bloomberg analysts’ forecast of 4.6 percent growth and a 4.5 percent increase in January-March.

Beijing is trying to diversify into developing countries and non-Western markets, especially as it invests in high-tech goods that compete directly with those in the EU and the US.

Russian President Vladimir Putin was in Beijing this week for a two-day state visit, during which talks were held on trade, investments, defense and the war in Ukraine.