China Sees Consumer Spending and Factory Output Sink in April

Official data released on Monday showed that Chinese consumer spending and factory output grew at their slowest pace in years last month.

Despite a huge boom in exports, the world’s second-largest economy has struggled to bounce back since the end of the Covid-19 pandemic after being hit hard by a deep and prolonged housing downturn.

The International Monetary Fund and economists have long argued that China should shift to an economic model dominated more by household spending, rather than traditional drivers such as exports and construction.

See also: Beijing summit yields meager results, stocks fall, oil prices rise

The National Bureau of Statistics (NBS) said on Monday that retail sales growth fell to just 0.2% in April from the same month last year.

The figure was well below many economists’ forecasts and was the slowest growth since December 2022, when the country was suffering from an outbreak of Covid-19 infections after an abrupt rollback of epidemic control policies.

Industrial production also fell short of expectations, growing only 4.1% year-on-year, down from 5.7% in March. It was the slowest rise in factory output since July 2023 recorded by the Office for National Statistics.

“The external environment remains complex and volatile,” National Bureau of Statistics spokesman Fu Linghui said at a press conference after the data was released.

“The imbalance between strong domestic supply and weak demand remains a prominent issue,” he added.

Deflationary pressures remain

Alicia Garcia-Herrero, chief economist for Asia Pacific at Natixis, told AFP that Monday’s data “sends a clear warning signal to those expecting a rebound in domestic demand”.

China’s growth model “has split into two distinct trends: weak domestic demand and outperformance of high-tech products,” she said.

“Export markets appear to be the only way to make the system sustainable, at least in the short term.”

A years-long crisis in the once-booming real estate sector has spooked consumers, though analysts say the market has shown modest signs of recovery in recent months.

Data released by the National Bureau of Statistics on Monday showed that the price decline of new residential properties in 70 cities in April slowed down compared with previous months.

Beijing’s overall economic growth target this year is 4.5-5%, lower than the target of around 5% in 2025.

Official data released last month showed China’s economy was on track to achieve that target, but experts warned that the full impact of the unresolved US-Israeli war on Iran has yet to be felt.

The Office for National Statistics said last week that consumer prices rose in April as the cost of crude oil rose globally due to war.

However, analysts warn that deflationary pressures are still weighing on the Chinese economy.

Hope for the electronics industry

As domestic consumption declines, the manufacturing powerhouse’s exports are booming, providing Beijing with an important economic lifeline.

The country posted an unprecedented $1.2 trillion trade surplus last year, with trade challenges with the United States offset by booming exports to other markets, including Southeast Asia.

“Domestic headwinds appeared to have intensified last month, particularly on construction activity,” Capital Economics’ Julian Evans-Pritchard wrote after Monday’s data.

“But with the rebound in external demand and the recovery of the electronics industry, we still believe that China’s economy will maintain good momentum this year,” he said.

“All in all, April’s economic activity data were disappointing but not yet cause for panic,” he wrote, adding that he expected economic growth to “remain resilient through the remainder of the year.”

Asian markets fall, focus on G7

As expected, Asian markets were mostly lower on Monday, while oil prices edged lower and higher after U.S. President Donald Trump issued a fresh warning to Tehran.

Trump said Tehran must reach a peace deal quickly or “they will have nothing.” Although the United States and Iran agreed to a truce in April, he issued the threat after returning from Beijing on Sunday as talks stalled and sporadic attacks continued in the region.

The conflict resulted in the effective blockade of the Strait of Hormuz, which “remains meaningfully closed following the incident – now approaching eleven weeks” Trump-Xi Summit Michael Wan of Mitsubishi UFJ Financial Group said on Monday there was no breakthrough in reopening the waterway at the Beijing meeting.

The Tokyo stock market closed down 1%, the Shanghai stock market fell 0.1%, and the Hong Kong stock market closed down 1.1%.

Analysts said the bond sell-off took center stage as traders focused on a meeting of Group of Seven finance ministers and central bank governors in Paris.

All eyes will then be on U.S. chip giant Nvidia’s quarterly results due on Wednesday, which will be closely watched as investors question whether huge spending on artificial intelligence data centers is matched by potential returns.

Government bond yields have risen globally in recent sessions as more investors question whether inflation will start to erode economic growth while putting pressure on deficits.

“Global government yields rose sharply at the start of this week as three forces collided: soaring oil prices, fading hope for a Strait of Hormuz resolution and rising fiscal concerns, especially in the UK and the US,” Wan said.

But he added that last week’s U.S.-China trade talks “brought a sigh of relief to Asian markets.”

Seoul’s stock market hit new highs in recent days due to a boom in artificial intelligence spending, closing up 0.3%.

In Tokyo, shares of memory chip maker Kioxia soared 16% after reporting stellar quarterly results on Friday.

kioxiaThe world’s third-largest producer of NAND flash memory chips, which are used as storage in artificial intelligence data centers, has seen its shares soar nearly 300% in the past year.

The company expects operating profit from April to June to reach 1.3 trillion yen ($8.2 billion) and said it is “riding a large wave of demand for artificial intelligence, which has led to record revenue and profits.”

Key figures around GMT 1045

LONDON – FTSE 100: up 0.1% to 10,208.12.

PARIS – CAC 40: down 0.8% to 7,886.97.

FRANKFURT – DAX 30: up 0.1% to 23,970.64.

TOKYO – Nikkei 225: down 1.0% to 60,815.95 (close).

Hong Kong – Hang Seng Index: down 1.1% to 25,675.18 (close).

Shanghai – Composite Index: fell 0.1% to 4,131.53 (closed).

NEW YORK – Dow: down 1.1% to 49,526.17 (close).

USD/JPY: rose from 158.78 yen to 158.91 yen.

North Sea Brent crude oil: rose 0.9% to $110.24 a barrel.

West Texas Intermediate crude oil: rose 0.8% to $106.31 a barrel.

• AFP With additional input and editing by Jim Pollard

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Jim Pollard

Jim Pollard is an Australian journalist based in Thailand since 1999. He worked for News Ltd newspapers in Sydney, Perth, London and Melbourne before traveling to South East Asia in the late 1990s. He served as a senior editor at The Nation for more than 17 years.