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China’s Economy Was Losing Steam Even Before Trump’s New Tariffs

China’s economic activity cooled across the board last month, undoing a brief surge earlier in the year and raising questions about the economy’s vitality even before higher U.S. tariffs start to bite.

Factory production, retail sales and investment in fixed assets all slowed in April, coming in below market expectations, according to government data released Wednesday. Some economists see further headwinds for the world’s second-largest economy, given the trade fight with the U.S. is likely to damp external demand and business confidence.

Value-added industrial output, a measure of factory production, rose 5.4% in April from a year earlier, slowing from an 8.5% year-over-year increase in March, the National Bureau of Statistics said.

Overall, some economists said that after a surge in March, demand looks slack across the economy, with consumers and businesses shrugging off tax cuts and other government measures to boost consumption.

“We had expected a slowdown in April from March, but the extent of slowdown turned out much bigger than we had thought,” said Ning Zhang, an economist at UBS. He said unusually large amounts of stimulus early this year frontloaded growth, taking away some of the momentum for April and possibly May.

Retail sales rose 7.2% in April from a year earlier, decelerating from March’s 8.7% growth–the slowest pace in more than 16 years.

Investment in buildings, large machinery and other fixed assets also slowed to 6.1% in the January-April period, compared with a 6.3% pace in the first three months.

Looking ahead, said Bank of Communications economist Liu Xuezhi, trade friction with the U.S. remains the biggest risk for the economy and so Beijing will have to ramp up efforts to stimulate domestic demand.

Housing sales by value bucked the slowing trend, rising 10.6% in the first four months over the year-ago period, with the pickup likely owing to easier access to credit. That compares with a 7.5% increase in the first quarter.

Before Wednesday’s weak data, economists expected Beijing to expand the tax cuts, easier credit and other measures begun last year to stabilize growth and counter trade tensions with Washington. With negotiations in the roughly year-old trade dispute hitting a snag, the U.S. increased tariffs on $200 billion of Chinese goods to 25% from 10% and is considering higher levies on the roughly $300 billion in imports from China not yet covered by the punitive duties. China retaliated on Monday by raising tariffs on $60 billion in U.S. imports.

UBS economists said in a research note that a full-on trade war could drag Chinese economic growth below 6% in 2019 and that Beijing will soon re-adjust policies to provide more credit and other support for the economy.

The investment bank early this week trimmed its forecast for China’s gross domestic product growth to 6.2% from 6.4% as the trade dispute escalated and economic activity showed early signs of slowing in April.

China has set a growth target of 6% to 6.5% for 2019. In the first quarter, the Chinese economy grew 6.4% from a year earlier. Economists widely expect a slowdown in the second quarter before a mild recovery in the later half of the year when the stimulus efforts start to show effect.

Liu Aihua, a spokeswoman of the statistics agency, said China’s low inflation and fiscal deficit rate as well as abundant foreign-exchange reserves give the government plenty of room to support economic growth.
Source: Dow Jones

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