20 February 2019
Source: CEIC, HSBC
Source: CEIC, HSBC

Weaker data raises need for policy support


April fixed-asset investment (FAI) and industrial production (IP) data came in slightly lower than consensus forecasts and were down from March readings as well. Weaker property investment was the main drag on FAI as home sales fell short of matching the spring rebound in 2013.

Infrastructure investment growth also slowed unexpectedly in April. Although this may pick up slightly in the coming months on the back of recently announced mini-stimulus measures, it is unlikely it will be enough to offset a weaker housing market and continued deleveraging in sectors with overcapacity. The data suggest that the downside risks to growth cannot be underestimated. To stop growth from sliding out of a “reasonable range”, Beijing needs to ease policy a little more in the coming months, if not weeks.

Industrial production growth fell slightly to 8.7 percent year-on-year in April, the lowest reading since April 2009.

Fixed-asset investment dropped to a multi-year low of 17.3 percent on the year to date.

The data suggests that the economy slowed further in April after a weak first quarter as both IP and FAI growth rates slipped to multiyear lows. Production in sectors with overcapacity continued to decelerate, while infrastructure investment did not grow fast enough to offset a sluggish manufacturing sector.

Growth in new FAI project starts picked up slightly, and may reflect some of the recent mini-stimulus measures announced by Beijing. But the magnitude of the improvement is marginal, and is unlikely to be enough to put a floor on investment and growth. The weaker industrial production is also concerning, given the closer correlation to GDP growth, and suggests the present slowdown is sharper than it was in mid-2013.

A weaker property sector poses further downside risks to the economy. Property investment accounts for a quarter of overall FAI investments and has significant links to final demand in many related industries. The implications from a further contraction in home sales, which leads investments, therefore warrants close attention. Tight funding conditions as indicated by the credit data release yesterday will also weigh on investments over the next few months. 

Data since the start of the year has suggested slower economic momentum, and the April figures indicate this has not changed. We think policymakers should step up policy support to keep growth within a reasonable range. This will entail more accommodative monetary policy to bring down borrowing cost for investment, as well as greater fiscal support. Policymakers have ample ammunition on both fronts though, and we think they are likely to deploy these in a more active manner in the coming months — if not weeks — to prevent a further deterioration in the real economy.

-– Contact us at [email protected]



Qu Hongbin is Co-Head Asia Eco Research & Chief China Economist at The Hongkong and Shanghai Banking Corporation Ltd.

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