China's Slowing Production, Capital Investment Reflect New Norm

China's factory-production levels eased last month while capital investment also grew at a slower pace after policymakers refused to boost stimulus, in a bid to stabilize economic output to "new normal" levels.

Industrial production in China grew at the weakest pace since May 2009 last month, underscoring the 'new norm' of slower growth as the government tries to stabilize the economy.

Combined output from manufacturers, mines, and utilities in China rose 8.7% year-on-year in April, according to the National Bureau of Statistics, easing from 8.8% growth seen in March. Analysts predicted industrial output to rise 8.9% in April.

Fixed asset investment was up 17.3% year-to-date in April when compared with the same period last year, the NBS also reported on Tuesday, down from 17.6% growth recorded a month earlier. Analysts had put expected investment at 17.7% growth year-to-date in April.

The fresh figures come just days after Chinese President Xi Jinping announced through the state-run news agency Xinhua that his country needs to get used to a "new normal" pace of economic output and stay "cool-minded" during a slowdown that economic analysts project will lead to the second-largest economy's weakest growth rate since 1990.

According to Bloomberg, Xi said China's growth components have not changed and the country remains in a "significant period of strategic opportunity." Nonetheless, the country's government must prevent risks and take "timely countermeasures to reduce potential negative effects," he added.

The pace of growth in China has slowed considerably over the last few years, before which double-digit growth was the norm.

Recent indicators of growth, such as manufacturing gauges, have led to rising alarm among traders and economists alike. The country's leaders are working to keep expansion from falling below Premier Li Keqiang's target of around 7.5% this year, while at the same time scaling back China's credit boom that could undermine its financial system.

The Chinese governments have thus far issued tax breaks and have been boosting infrastructure and social-housing investment in what economists call a 'mini stimulus'. Li has maintained that the focus is pegged on the quality of growth and on reforming the economy's structure while keeping employment at healthy levels.

The latest remarks from Chinese leaders reiterates that China is experiencing its slowdown because of the transition it's going through. Which in many ways prepares the market for more weakness in economic activity.

Credit growth slows

New bank loans in China last month equated 775 billion yuan, according to data released by the People's Bank of China, falling short of the market forecast of 840 billion yuan, and declining heavily from the previous month's loans valued at 1050 billion yuan.

This corresponds to a slowdown in outstanding loans from 13.9% year-on-year in March to 13.7% in April.

But while outstanding loans are declining, as a percentage of gross domestic product (GDP) they have actually been rising, according to economists from Capital Economics, who forecasts the rise in outstanding private credit to have reached 208% of GDP from 203% at the beginning of the year.


In other words, it is still too soon to talk of deleveraging. However, the government’s composure so far is an encouraging sign that policymakers are still giving priority to bringing credit risks under control.