China: signs of sluggish domestic demand and renewed trade frictions
2024-05-21
■ In China, the growth of manufacturing activities is strong, but the recovery of domestic demand projects such as consumption and investment still lacks momentum.
■ The side effects of promoting structural reform are evident in multiple aspects and have also become one of the reasons for the escalation of trade frictions.
The major economic indicators for April in China released on the 17th revealed a rough economic trend. From the leading indicators, the momentum of industrial production (year-on-year growth of 6.7%) has increased, exports (year-on-year growth of 1.5%) have also begun to rise, and manufacturing activities are active. However, the growth rate of retail sales (up 2.3% year on year), fixed assets investment (excluding rural areas, up 4.2% year on year), and service industry production index (up 3.5% year on year) slowed down. The recovery of domestic demand items such as consumption and investment still lacked momentum.
Multiple other indicators indicate economic stagnation, with structural adjustments dragging economic recovery. Inflation statistics show that the growth rate of the Consumer Price Index (up 0.3% year-on-year) is meager, while the Producer Price Index (down 2.5% year-on-year) continues to decline, showing a deflationary trend. The ex-factory prices of coal, steel, non-ferrous metals (such as aluminum products), and other fields have significantly decreased, and price adjustment pressure remains strong. Real estate-related indicators show that the decline in real estate development investment (a year-on-year decrease of 9.8%) and real estate sales (a year-on-year decrease of 20.2% based on building area) has expanded, and real estate transactions and development investment continue to shrink. Financial statistics show that the growth rate of money supply (M2, a year-on-year increase of 7.2%) and total social financing balance (a year-on-year increase of 8.3%) has significantly slowed. The Chinese government announced in the government work report in March that it would issue 1 trillion yuan of ultra-long-term special treasury bonds as a source of funds for infrastructure investment. Economic activities are expected to strengthen further in May. However, the current slowdown in the growth of currency circulation indicates that the demand for funds has not increased, one of which is due to weak investment.
The government-driven transformation from an investment-driven economy to a sluggish real estate market has suppressed investment demand growth in China. The structural decline in demand for building materials has led to an imbalance in supply and demand for products such as steel, affecting the adjustment of raw material prices. The accumulation of inventory due to oversupply and the low prices of exports have triggered trade frictions, with multiple countries concerned about the decline in their industrial competitiveness. On the 14th, the United States announced it would expand the target of raising tariffs on China, including advanced technology products such as semiconductors and electric vehicles and products such as steel and aluminum. The Chinese government has set a high growth target of approximately 5%, supporting technology-driven growth in massive amounts. However, the side effects of structural reforms, sluggish domestic demand, excess supply, and huge subsidies have led to a resurgence of trade frictions, which will constrain economic policies and gradually show its impact.
■ The side effects of promoting structural reform are evident in multiple aspects and have also become one of the reasons for the escalation of trade frictions.
The major economic indicators for April in China released on the 17th revealed a rough economic trend. From the leading indicators, the momentum of industrial production (year-on-year growth of 6.7%) has increased, exports (year-on-year growth of 1.5%) have also begun to rise, and manufacturing activities are active. However, the growth rate of retail sales (up 2.3% year on year), fixed assets investment (excluding rural areas, up 4.2% year on year), and service industry production index (up 3.5% year on year) slowed down. The recovery of domestic demand items such as consumption and investment still lacked momentum.
Multiple other indicators indicate economic stagnation, with structural adjustments dragging economic recovery. Inflation statistics show that the growth rate of the Consumer Price Index (up 0.3% year-on-year) is meager, while the Producer Price Index (down 2.5% year-on-year) continues to decline, showing a deflationary trend. The ex-factory prices of coal, steel, non-ferrous metals (such as aluminum products), and other fields have significantly decreased, and price adjustment pressure remains strong. Real estate-related indicators show that the decline in real estate development investment (a year-on-year decrease of 9.8%) and real estate sales (a year-on-year decrease of 20.2% based on building area) has expanded, and real estate transactions and development investment continue to shrink. Financial statistics show that the growth rate of money supply (M2, a year-on-year increase of 7.2%) and total social financing balance (a year-on-year increase of 8.3%) has significantly slowed. The Chinese government announced in the government work report in March that it would issue 1 trillion yuan of ultra-long-term special treasury bonds as a source of funds for infrastructure investment. Economic activities are expected to strengthen further in May. However, the current slowdown in the growth of currency circulation indicates that the demand for funds has not increased, one of which is due to weak investment.
The government-driven transformation from an investment-driven economy to a sluggish real estate market has suppressed investment demand growth in China. The structural decline in demand for building materials has led to an imbalance in supply and demand for products such as steel, affecting the adjustment of raw material prices. The accumulation of inventory due to oversupply and the low prices of exports have triggered trade frictions, with multiple countries concerned about the decline in their industrial competitiveness. On the 14th, the United States announced it would expand the target of raising tariffs on China, including advanced technology products such as semiconductors and electric vehicles and products such as steel and aluminum. The Chinese government has set a high growth target of approximately 5%, supporting technology-driven growth in massive amounts. However, the side effects of structural reforms, sluggish domestic demand, excess supply, and huge subsidies have led to a resurgence of trade frictions, which will constrain economic policies and gradually show its impact.