China slowdown tests leaders' resolve
China's trade, inflation and lending data for May all trailed estimates, signalling weaker global and domestic demand that will test the nation's leaders' resolve to forgo short-term stimulus for slower, more-sustainable growth.
Overseas sales rose 1 per cent from a year earlier, down from 14.7 per cent the previous month, the customs administration said yesterday, after a crackdown on fake trade invoices. Data today showed factory-gate prices fell for a 15th month, inflation was lower than all estimates in a Bloomberg survey and new yuan loans declined.
The data add pressure on President Xi Jinping and Premier Li Keqiang to shore up growth less than three months into their tenure, after first-quarter expansion unexpectedly slowed.
While the figures strengthen the case for easing monetary policy or approving more spending, the leaders' room is limited by rising home prices, financial risks and overcapacity.
"The focus for China's new leadership this year is adjusting the economic structure" instead of achieving a high growth rate, said Zhu Haibin, chief China economist at JPMorgan Chase & Co in Hong Kong. "If economic indicators remain weak throughout the second quarter, the Chinese leadership may accelerate existing reforms and policy support, including on the monetary- and fiscal-policy fronts."
Data due later today on industrial production and retail sales for May and fixed-asset investment for the first five months are forecast to show little change from April's growth rates. Analysts last month trimmed economic-expansion forecasts for the April-June period to a median projection of 7.8 per cent from an 8 per cent pace forecast in April.
Li told provincial leaders yesterday that while growth is still relatively fast and within a reasonable range, "complicated factors" are ahead and must be closely monitored. Xi said at a California summit with US President Barack Obama that "we have full confidence in sustained and healthy long-term economic development" and that risks and challenges are controllable.
May exports rose by the least in 10 months, while imports dropped 0.3 per cent from a year earlier. The median estimates of analysts were for 7.4 per cent export growth and 6.6 per cent import gains.
The $20.4-billion trade surplus compared with forecasts for $20 billion.
"This shows the real state of the Chinese export situation," said Shen Jianguang, chief Asia economist at Mizuho Securities Asia in Hong Kong. The data give a "pretty depressed" picture, with weak external demand and a yuan that has appreciated substantially against a trade-weighted basket of currencies, said Shen, previously of the European Central Bank.
The slowdown in May's trade figures was partly the result of "arbitrage trade" with Hong Kong being curbed, the customs administration said yesterday. Appreciation in the yuan and the worsening trade environment, as well as a domestic slowdown, weak external demand and high business costs, also contributed, the agency said.
New local-currency lending of 667.4 billion yuan ($109 billion) trailed the median estimate of 34 economists and was down from 793.2 billion yuan a year earlier, People's Bank of China data showed. Aggregate financing of 1.19 trillion yuan compared with 1.14 trillion yuan in May 2012, while M2 money supply grew 15.8 per cent from a year earlier.
The PBOC said in a June 7 financial-stability report that overdue loans rose 46 per cent last year, adding to signs of strain in the banking system.
The consumer price index rose 2.1 per cent from a year earlier, the National Bureau of Statistics said, dragged down by slower food inflation. The producer price index fell by a more than estimated 2.9 per cent, the biggest drop since September.
The trade slump adds to concerns that the global recovery is losing momentum. The ECB last week forecast the 17-nation euro area will contract 0.6 per cent this year, more than its March estimate of 0.5 per cent.