by Shaun Richards
As 2022 has developed we have seen 2 major economic themes which are inflation and a economic slow down. Of course, a major factor in the latter has been the cost of living crisis which will impact on real wages and consumption. Added to this has been the spring lock downs in China which have put a further squeeze on the economy there and we have received more detail on how severe that has been this morning.
In April, local epidemics occurred frequently, affecting most provinces across the country. Residents went out to shop and eat less, and the sales of non-essential commodities and the catering industry were significantly impacted. In April, the total retail sales of consumer goods fell by 11.1% year-on-year, of which retail sales of goods fell by 9.7%. ( National Bureau of Statistics )
As you can sell retail sales as we would define it fell by some 11.1% and as happens to frequently the estimates for this were wrong as they were around -6%. If you stop many people moving and getting around you should not be surprised if this happens.
The growth of the retail sales of travel commodities, whose market size accounts for a large proportion of the total retail sales of social consumer goods, has slowed down significantly, which has a greater impact on the consumer market. The retail sales of automobiles by units above designated size decreased by 31.6% year-on-year, and the growth rate of retail sales of petroleum and products dropped by 5.8 percentage points from the previous month.
If they cannot travel then where they are going to will be hit as well.
At the same time, industries such as accommodation and catering have been greatly affected. Catering revenue in April fell by 22.7% year-on-year, and revenue from rooms above designated size fell by more than 30%.
It looks as though some switched to more basic ways of feeding themselves.
From April, the retail sales of grain, oil, food and beverages of units above designated size increased by 10.0% and 6.0% year-on-year respectively.
Also we got an official denial of what this all means.
The obvious decline in market sales in April was mainly due to the short-term impact of the epidemic, but the expansion of household consumption and the upgrading of consumption structure will not change.
Production
We also saw a drop in industrial production.
In April , the added value of industrial enterprises above designated size fell by 2.9% year-on-year . From a month-on-month perspective, in April , the added value of industrial enterprises above designated size decreased by 7.08% from the previous month .
Again expectations were wrong as they were going for marginal growth. But the overall impression here is a good start to 2022 followed by a slump. Also if we look at the detail we see that the rise in commodity prices and the mining response has flattered the overall numbers.
Divided into three categories, in April , the added value of the mining industry increased by 9.5% year-on-year ; the manufacturing industry decreased by 4.6% ; the electricity, heat, gas and water production and supply industries increased by 1.5% .
Also I guess it is no surprise that foreign-owned firms were heavily affected.
foreign-invested enterprises, Hong Kong, Macao and Taiwan-invested enterprises decreased by 16.1%
Energy
Whilst China was mining more coal it was using less of it for power production.
Electricity generation fell in April from the prior month to 608.6 billion kilowatt-hours, a decline of 4.3% on the same period last year. Thermal power output plunged to an even greater degree, down 12% for the biggest drop since 2008, as the share of renewables increased at the expense of coal and gas and China installed more solar capacity than expected in the first quarter. ( Bloomberg)
There was something of a silver lining in this though.
The moderation in China’s appetite for fossil fuels has come at an opportune time for the world’s biggest energy importer, as well as global markets contending with higher prices resulting from the war in Ukraine.
Investment
There was a little bit of relief from investment which only marginally declined.
On a month- on- month basis, fixed asset investment (excluding farmers) fell by 0.82% in April .
So the annual growth rate fell but less than elsewhere.
From January to April , the national fixed asset investment (excluding farmers) was 15,354.4 billion yuan, a year-on-year increase of 6.8% .
Property Investment
This is a subject we have been following for a while as the market in China slowed meaning that some developers became under pressure. That even impacted across the globe, but also near to me, as work on a twin tower development at None Elms found itself stopped. There have been easing attempts from the authorities ( perhaps the Chinese version of “The Precious! The Precious!”) but as you can see there is still downwards pressure.
From January to April , the national real estate development investment was 3,915.4 billion yuan, a year-on-year decrease of 2.7% ; of which, residential investment was 2,952.7 billion yuan, a decrease of 2.1% .
They do not seem to be keen on giving us numbers for April which is revealing and I note that funds are tight.
From January to April , the funds in place for real estate development enterprises were 4,852.2 billion yuan, a year-on-year decrease of 23.6% .
Also it looks like inventories are tightening.
From January to April , the funds in place for real estate development enterprises were 4,852.2 billion yuan, a year-on-year decrease of 23.6% .
Credit
Only on Friday we were told about quite a slowing here.
Chinese banks extended 645.4 billion yuan ($95.14 billion) in new yuan loans in April, down about 80% from March and dipping to the lowest level since December 2017, according to the People’s Bank of China data. ( Reuters)
This applied to property as well it would appear.
Household loans, including mortgages contracted by 217 billion yuan in April, versus 753.9 billion yuan in March.
Although money supply growth was quite strong.
Broad M2 money supply grew 10.5% from a year earlier,
Comment
The official view is that all the problems are lockdown related. But there is more to it than that as we have been observing the issues of the property sector for a while now. Also the central bank eased policy on the 24th of April. Also there is the issue of this.
China’s jobless rate rose to 6.1% in April, the highest level since the 6.2% peak seen in the early part of the Covid-19 pandemic in February 2020. ( BBC World )
I think that we are also seeing a currency devaluation in response to the weaker economy.
The trade-weighted renminbi has now fallen 6% from its highs seen in March. One cannot but think that this is a policy adjustment by Chinese authorities as they search to stimulate their economy.
Some of this is US Dollar strength but the rest is Renminbi weakness. So we could see monetary easing and a lower currency as China looks to respond to its slow down. Also with inflation rising to 2.1% even they are having to admit that there is an issue for it although it is hard to believe it is only 2.1%.
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