Overview

• Trade tensions between China and partners such as the United States and the European Union have intensified in recent months – culminating in the Biden Administration announcing a range of tariff increases on Chinese imports. Critics suggest that China is failing to address industrial overcapacity – in part related to long running weakness in domestic consumption and a high savings rate – and is instead pushing its domestic imbalances into global markets. Comparatively strong growth in industrial production and weak retail sales data in April do little to counter this argument. Our forecasts for China’s growth rate are unchanged – we see its economy expanding by 4.5% in 2024 and 4.8% in 2025.
• China’s industrial production growth accelerated in April, following on from a dip in March. Output rose by 6.7% yoy, compared with 4.5% yoy in March and an average of 7.0% yoy across January and February. Production of electronics and motor vehicles continued to increase (with electric vehicles increasing by almost 36% yoy). In contrast, construction related heavy industry saw steep falls.
• Growth in China’s real fixed asset investment slowed in April – with investment increasing by 4.6% yoy (down from 6.0% yoy in March). There continues to be a wide disparity in nominal investment growth between private sector firms and state-owned enterprises (SOEs) – with the former growing by 1.6% yoy in April, and the latter by 6.7% yoy.
• China’s trade surplus increased in April, rising to US$72.4 billion (up from US$58.6 billion previously). This increase reflected a month-on-month acceleration in exports, while imports were marginally softer. This surplus was slightly above the average seen since late 2021. On a rolling twelve month basis, China’s trade surplus eased slightly in April but remains around the typical levels seen since October 2023 and far above pre-pandemic levels – helping to fuel the trade tensions.
• Real retail sales growth slowed considerably in April – increasing by 2.0% yoy (compared with 3.0% yoy in March). With the volatility of late-2022 and early 2023, associated with the end of the zero-COVID policies, fading from growth calculations, this result points to weak domestic consumption persisting in April.
• New credit issuance was comparatively weak in the first four months of 2024, with issuance declining by 19.3% yoy to total RMB 12.7 trillion. It is worth noting that much of this decline was driven by new issuance contracting on a net basis in April – with lending pulling back by RMB 199 billion – as the stock of government bonds and banker’s acceptance bills fell.
• The weakness in credit issuance in April has raised expectations of further monetary policy easing in coming months. That said, it has been apparent for some time that loan demand is weak, and relatively minor adjustments to monetary policy are unlikely to have a meaningful effect alter this situation.

For further details, please see China’s economy at a glance (17 May 2024)