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 Wednesday's data added to concerns that Beijing's growth target of
around 7 percent for the year is already at risk, and reinforced
views that authorities need to take bolder measures to head off job
losses and debt defaults by local governments and companies.
The central bank is expected to follow this week's interest rate cut
with more stimulus in coming months, while the government may ramp
up spending to try to energize the economy, which looks set for its
worst year in 25 years.
"It's again worse than what most people had expected, especially on
the investment side. All of this suggests that the downward
pressures on growth in China are persisting, especially in the
industrial part of the economy," said Louis Kuijs, China economist
at Royal Bank of Scotland in Hong Kong.
"This type of data will motivate policymakers to further ease on the
monetary and fiscal sides."
The People's Bank of China (PBOC) has cut benchmark interest rates
three times in the past six months, including a move early this
week, on top of reductions in banks' reserve requirement ratio (RRR)
and measures to shore up the ailing property market, which accounts
for about 15 percent of the economy.
Kuijs has penciled in at least one more interest rate cut in the
third quarter, coupled with more quantitative measures.
PROPERTY DRAG
Signs of deteriorating conditions abounded in the April data.
Despite efforts to pump more money into the economy, money supply
growth slowed to 10.1 percent from a year earlier.
Banks made 708 billion yuan ($114.11 billion) of new loans last
month, about one-fifth less than expected, as slowing earnings
growth and rising bad loans made lenders more cautious.
Banking sources have told Reuters that some lenders are not passing
on lower borrowing costs to customers, undermining official efforts
to boost the economy.
For their part, companies complain they are short of customers, not
credit, and thinning profit margins are making it more difficult to
pay off existing debt. In addition, a sizeable amount of the loans
which are being made are believed to be for refinancing, not new
activity.
Policy insiders told Reuters earlier this month that in addition to
further monetary easing, the government may also ramp up state
spending to shore up growth.
"Such (credit) data makes it impossible for the government to find
funding for the infrastructure projects it is planning," said
Dariusz Kowalczyk, a senior economist at Credit Agricole in Hong
Kong.
"It is clear that more needs to be done in terms of monetary
stimulus."
WEAKENING INVESTMENT
Fixed-asset investment, a crucial driver of activity, rose 12
percent in January-April from a year earlier, the slowest pace since
December 2000, the National Bureau of Statistics said.
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A breakdown of the figures showed slower growth in both government
and private sector spending, and a sharp drop in the mining sector.
Overall spending on new projects stalled.
Property investment growth slowed to 6 percent in January to April
from a year earlier, easing from 8.5 percent in the first quarter
and the weakest level since 2009.
New property starts fell by 17.3 percent in January-April, hitting
demand for everything from cement and steel to furniture and
appliances. While home sales and prices may be bottoming out in big
cities, analysts said high inventories of unsold houses are likely
to prevent any meaningful recovery for some time.
"The property sector remains the biggest drag on the economy," said
Nie Wen, an economist at Hwabao Trust in Shanghai.
"The chance of GDP growth bottoming out in the second quarter is
small. We expect Q2 growth to be 6.7-6.8 percent," he said, adding
activity should start to stabilize in the second half.
The latest data also suggested China's vaunted consumers are showing
signs of spending fatigue. Retail sales rose 10 percent last month,
missing expectations for a 10.5 percent rise and easing from March.
General Motors Co said on Tuesday it was cutting vehicle prices on
40 models in China after sales fell.
That spells more bad news for the PBOC, as strength in domestic
demand and the services sector have been helping to offset
persistent weakness and job shedding in manufacturing.
Other data last week showed weaker-than-expected exports, imports
and inflation, highlighting that China's economy is under persistent
pressure from softening demand at home and abroad.
"Today's data do not reflect the impact of easing (in mid-April and
May). However, it is clear that economic activity has continued to
decelerate and policymakers are likely still behind the curve," HSBC
economist Julia Wang said in a research note.
(Editing by Kim Coghill)
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