China’s Economy Was Losing Steam Even Ahead of Trump’s New Tariffs

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China’s economy lost steam in April, underscoring the fragility of the world’s second-largest economy as it girds for an intensified face-off with the U.S. over trade.

Industrial output, retail sales and investment all slowed, capping a tough month. The state sector continued to boost investment while private business eased off, and growth in manufacturing investment came in at the slowest pace in data dating back to 2004.

Faltering credit and consumption at home coupled with a weaker global economy means China is running out of steady growth engines just when it needs them, turning attention to government stimulus measures yet to come. U.S. President Donald Trump rolled out 25% tariffs last week that have left Chinese producers reeling, and there’s still the prospect of the trade war being widened to all the goods America buys.

“It’s quite safe to say that growth has yet to truly bottom out and the double dip is confirmed,” said Lu Ting, chief China economist at Nomura Holdings Inc. in Hong Kong. “We expect Beijing to significantly ramp up easing/stimulus measures to stabilize financial markets and bolster growth, despite the more limited policy room than in previous easing cycles.”

Asian stocks were mixed Wednesday. Potentially reflecting expectations of further policy support, stocks in Hong Kong and China were modestly higher. The yuan was little changed.

Data  In April  Estimate In March
Industrial output (y/y) 5.4% 6.5%  8.5%
Retail sales (y/y) 7.2% 8.6% 8.7%
Fixed-asset investment (ytd) 6.1% 6.4% 6.3%

China still has ample room to step up policy support for the economy, according to Liu Aihua, a spokeswoman for the National Bureau of Statistics at a press conference Wednesday. While policymakers have rolled out targeted fiscal and monetary policy measures to stem the slowdown since last year, they can still turn to extra tax cuts, infrastructure spending, as well as trimmed policy rates and reductions in bank reserves if needed.

The case may become compelling for President Xi Jinping’s government. The Communist Party faces failure to meet its long-term growth target of doubling 2010 gross domestic product by next year on the back of the hit from Trump’s new tariffs, according to a survey of economists.

2019 gross domestic product growth will be lowered by 0.3 percentage point by the rise in U.S. tariffs on $200 billion of imports from China. If more tariffs are introduced to cover all Chinese goods, that will cost China 0.6 percentage point in the 12 months after, according to the median estimates of those polled.

The data “ring the alarm bell on weak demand both at home and abroad,” said Liu Xuezhi, an economist at Bank of Communications Co. in Shanghai. “Policy makers need to prioritize stabilization in this scenario.”

President Donald Trump tapped into the rising chances for more stimulus in China with a tweet Tuesday saying that the U.S. would win if the Federal Reserve did the same as Beijing. Later in the day he said that more quantitative easing would boost U.S. growth to 5%.

Trump said he’ll meet his Chinese counterpart at next month’s G-20 summit, an encounter that could prove pivotal in reaching a deal that prevents a deepening clash over trade.

The U.S. Trade Representative’s office Monday released a list of about $300 billion worth of Chinese goods including children’s clothing, toys, mobile phones and laptops that Trump has threatened to hit with a 25% tariff — drawing practically all China’s exports to the U.S. into the trade war.

One potential bright spot from Wednesday’s report is property, with investment rising to 11.9% in the first four months. Unemployment also dipped, a sign that stimulus measures since last year had started to stabilize the economy before the latest challenges. The survey-based unemployment stood at 5%, versus 5.2% the previous month.

— With assistance by Kevin Hamlin, and Miao Han

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