China’s economic engine appears to have lost some steam, with official numbers indicating a slower momentum of manufacturing and services activity in April attributed to persisting economic headwinds, notably a weakening consumer appetite.
The National Bureau of Statistics (NBS) manufacturing purchasing managers’ index (PMI) fell to 50.4 in April from 50.8 in March, over the 50-point threshold that separates expansion from contraction and marginally ahead of a consensus prediction of 50.3 in a Reuters poll.
The services subindex under the NBS non-manufacturing survey grew at the slowest pace since January, coming in at 50.3 in April compared with 52.4 in March.
“After being the primary driver for economic growth in 2023, consumption activity is moderating in 2024 amid weak consumer confidence and negative wealth effects, and this will likely have a larger impact on the services sector in China,” Lynn Song, chief economist at ING wrote in his reaction note, viewed by The Epoch Times, on Tuesday
However, according to Julian Evans-Pritchard, head of China economics at Capital Economics, while the ongoing cyclical recovery will persist in the short term, largely on the back of budgeted fiscal support, “there are [still] plenty of downside risks.”
Extended Property Slump
The data highlight the challenges that policymakers are facing, although first-quarter GDP growth may have reduced some of the urgency to implement stimulus measures, according to the analysis.The note also added there was an anticipation that Chinese authorities will introduce more stimulus to support the economy from the Politburo meeting, which is expected to focus on economy.
But, with the U.S. Federal Reserve and other developed economies not in a rush to lower interest rates, China may face a longer period of weak external demand.
“The PMI data release shows production improved, but new orders weakened compared to last month. This reflects that domestic demand is still quite weak. The property sector has not stabilized yet,” said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, in a reaction that was shared with The Epoch Times.
Besides, Beijing is still grappling with trade barriers as the U.S. accuses China of exporting its excessive industrial capacity. Officials too have emphasized the importance of economic development based on innovation in advanced sectors this year.
However, analysts maintain that the country’s immediate problem lies in a prolonged property downturn and the growing debt of local governments, which have eroded household and investor confidence and negatively impacted the economic outlook.
“Although most domestic investors see PPI [Producer Price Index] as the key data point to watch for China’s economy, many global investors believe the property market is more important to China,” said Jefferies in a report last week.
Global investors worry that if the anticipated property sector defaults happen, it will “break China’s back.” Smaller financial institutions are already at risk from potential events in 2024, and larger national financial institutions may suffer negative consequences if substantial property businesses collapse.
Trade Tensions
That aside, “the economy [also] remains vulnerable to [external] trade tensions,” said Mr. Evans-Pritchard in his note.According to the 2024 business climate survey report released last week by the American Chamber of Commerce in China, for the fourth year running, escalating tensions between the United States and China continue to be a major worry for over 40 percent of its 1,000 members.
While concerns have slightly eased from last year, they still hold significant weight among members’ priorities, a trend initiated in 2021.
In addition, there’s a mounting apprehension regarding inconsistent regulatory interpretations and increasing labor expenses.
Politburo Disappoints
Meanwhile, in today’s Politburo meeting, policymakers set the policy tone for the rest of the year, appearing less concerned about near-term growth than at the “Two Sessions” in March and the Central Economic Work Conference in December.The Politburo emphasized the implementation of planned easing measures and advocated for more policy assistance for pre-sold homes, local government debt resolution, high-tech manufacturing, green sectors, and market reforms.
The overall guidance for the property industry remained largely unaltered, however the Politburo pledged to “study how to digest the existing housing inventory.”
“Economic development has achieved a good start this year,” the policymakers said, acknowledging that some structural challenges from “insufficient domestic demand,” “high pressure for business operations,” “lingering risks in some key areas,” and “heightened external uncertainties” are still the key challenges in the economy.
However, “The statement released following the meeting suggests policymakers appeared less concerned about near-term growth,” commented Moody’s in a note viewed by The Epoch Times.
