China’s ugly April

It’s official, the Chinese economy did not bottom out in the first quarter, and the latest data confirms just how badly the economy is doing (or just how optimistic the market has been).

While I am bearish on China and did not think the worst was over for the Chinese economy, I did think that the slowdown had stabilised a bit in the late first quarter, and will probably enjoy another leg down later this year.

The latest data suggests, however, that even China bears like myself could be wrong for not being bearish enough. The short-term stabilisation I was looking for has stayed much shorter than I thought it would, and the data from April has been uniformly bad. The only good news appears to be that inflation is trending down, so inflation pressure is much less of a concern when the government is trying to implement pro-growth measures, and that’s what people have been hoping for.

Here’s a round-up of just how ugly some of these April macro data look.

Official PMI: Actual 53.3 vs Expected 53.6 (also note just how the manufacturing PMI diverged from the actual industrial production figures in the charts way below):

Historically, this was a very slow April for manufacturing:

Exports grwoth: Actual 4.9% yoy vs. Expected 9.1% yoy. Imports growth: Actual 0.4% yoy vs. Expected 12.5% yoy

Industrial Production growth: Actual 9.3% yoy vs. Expected 12.2% yoy  (note the divergence with PMI):

Retail sales growth: Actual 14.1% yoy vs. Expected 15.1% yoy:

Fixed asset investment growth: Actual 20.2% yoy vs. Expected 20.4% yoy:

M2 money supply growth: Actual 12.8% yoy vs. Expected 13.3% yoy:

New loans: Actual RMB681.8 billion vs. Expected RMB 780 billion:

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  1. Aristophrenia

    I think its safe to say there is a trend line from the stimulus which can be followed, if only via correlation and not causation, over many markets – including Australian housing market and conversely the US financials.

    Interested in the thoughts of the reduction in reserve requirements in a declining market with the rate of delinquencies rising on developers who are the main financial risk in the housing market. Removing reserve requirements may have a negative impact on the sentiments on already skittish savers.

    I would very much hate to see the consequences in China of people losing their savings as they try to escape the falling housing market and return to traditional bank savings only for them to be wiped out – would be concerning for the polit bureau.

    Also interesting is the methodology of the ease.