China's Economic Recovery is Likely to Accelerate as the Outlook is Boosted by Stimulus Measures - Latest Global News

China’s Economic Recovery is Likely to Accelerate as the Outlook is Boosted by Stimulus Measures

China’s economy likely continued to show signs of recovery in April, boosting recovery prospects as policymakers increased support.

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(Bloomberg) — China’s economy likely continued to show signs of improvement in April, boosting recovery prospects as policymakers increased support.

Data due on Friday will provide insight into whether the world’s second-largest economy was able to maintain recovery momentum in the first quarter as it targets ambitious full-year growth of around 5%.

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Industrial production is expected to remain a key growth driver, with robust exports and infrastructure investment boosting demand. Consumption could continue to be a drag as a prolonged real estate slump has weighed on sentiment.

There have been numerous growth-promoting signals from China in recent weeks. Top politicians hinted at measures to reduce housing stock – with Beijing considering a plan for local governments to buy millions of unsold homes. China will begin selling 1 trillion yuan ($138 billion) of its ultra-long special government bonds on Friday, a move to raise funds to support the economy. This also raised expectations of further easing of monetary policy to help banks buy up the bonds.

“It’s a gradual recovery,” said Michelle Lam, an economist at Société Générale SA. After positive data in the first quarter, the bank raised its forecast for China’s growth this year to 5%. Investors are waiting to see what new measures will be announced for the real estate sector, but “this could mean stabilization sooner than expected,” she said.

Here’s what to expect when the National Bureau of Statistics releases the data at 10 a.m. Friday:

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industrial production

Industrial production is expected to rise 5.5% in April from a year earlier, according to an average forecast of economists in a Bloomberg survey. That’s an acceleration from March’s 4.5% increase.

Both official and private surveys of manufacturers pointed to an expansion in factory activity last month. Data from the statistics office showed that manufacturing output rose to its highest level in more than a year. The number of new export orders recorded the first consecutive increase since March 2023.

But China’s strong industrial production is causing tensions with the West. The United States and Europe have criticized Beijing for flooding the global market with cheap goods, particularly in the new energy sectors. Given these concerns, and as producer prices remain mired in deflation, China urged lithium battery manufacturers not to build facilities “solely aimed at expanding production capacity.”

consumption

Retail sales likely rose 3.7% last month after rising 3.1% in March. Still, the pace is weaker than what China was used to before the pandemic. Domestic demand remains weak, as evidenced by inflation data only slightly above zero and a surprise decline in lending.

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Vehicle sales, which account for around 10% of total retail sales, also reflect subdued demand. The China Passenger Car Association said sales through retail networks fell 5.8% in April from a year earlier, as consumers awaited further discounts amid a price war among automakers.

To stimulate demand, the government has introduced a program to encourage households and businesses to upgrade their old machinery and household goods. Cars are the focus of this plan, with the central government providing up to 10,000 yuan ($1,385) in one-time subsidies for individuals who replace their vehicles.

Total tax resources for car trade-ins could reach 80 billion yuan, exceeding the previously expected cap of no more than 50 billion yuan. That could force the government to cut spending elsewhere, Morgan Stanley economists including Robin Xing said this week.

The program, along with other current measures, “provides some perspective on relatively stable economic growth for the remainder of this year,” the economists said. However, the measures have not been forceful enough to restart the economy, they added.

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investment

Fixed investment is expected to have increased by 4.6% in the January-April period, up slightly from a 4.5% gain in the first quarter.

But real estate investment may have fallen 9.7% in the first four months, worse than the 9.5% decline in January-March. The country’s biggest property developers were under pressure after a sustained slump in home sales, leaving companies with little confidence or means to expand.

More cities are lifting restrictions on home purchases to boost demand, including Hangzhou – home of e-commerce giant Alibaba Group Holding Ltd. – as a recent example. The government in April also banned the sale of new land to build houses in cities with significant inventory backlogs.

Infrastructure investment is likely to have proved resilient as funds raised through an additional 1 trillion yuan of government bond issuance last year are still being spent on water conservation, transportation, disaster relief and other projects.

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China’s recovery is expected to continue, supported by a series of growth-boosting measures announced in recent weeks. The issuance of this year’s 1 trillion yuan of special government bonds will last until mid-November, while local governments can still use over 70% of the annual quota for 4.62 trillion yuan of new bonds.

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This could prompt the government to ease monetary policy to ensure sufficient liquidity for bond sales and prevent disruptions in the financial system.

The central bank “could provide some liquidity support during bond issuance and even buy some indirectly through its balance sheet expansion,” economists at Goldman Sachs Group Inc., including Lisheng Wang, wrote in a note on Monday.

They expect the PBOC to cut the reserve requirement ratio twice by 25 basis points each in the current and last quarters and cut the key interest rate by 10 basis points in the July-September period.

(Updates with analyst commentary in fifth paragraph)

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