Factory production in China slows as bottlenecks put pressure on production

Beijing β€” China’s factories slowed production growth in April, and retail sales fell significantly below expectations as authorities warned of new issues affecting the recovery of the world’s second-largest economy.

Chinese exporters are enjoying strong demand, but global supply chain bottlenecks and rising raw material costs are squeezing production, chilling the fierce economic recovery from last year’s COVID-19 downturn. ..

According to data from the National Bureau of Statistics, factory output in April increased by 9.8% from a year ago, which was as expected, but slower than the surge of 14.1% in March. Meanwhile, retail sales were up 17.7%, much weaker than the March forecast of 24.9% and a 34.2% surge.

NBS spokesman Fu Linghui said the Chinese economy showed steady improvement in April, but new problems, especially rising international commodity prices, have also surfaced.

“The foundation for a domestic economic recovery has not yet been secured,” Hu said at a press conference in Beijing on Monday.

“For the enterprise as a whole, price increases will improve the efficiency of the enterprise, but we need to pay attention to the pressure on downstream industries,” he said.

China’s factory price inflation reached its highest pace since April 2017. It could rise further in the second and third quarters, according to a report from the central bank last week.

The slowdown in activity index growth in April also led to a decline in the base effect as the year-on-year decline from the very sharp decline seen when the coronavirus closed most of the country in early 2020. It was partly caused.

In the factory sector, vehicle production growth plummeted from 69.8 percent to 6.8 percent, partly due to some fundamental effects, in addition to a significant shortage of semiconductors used in automotive systems.

Cement production slowed in April and coal production declined year-on-year, but aluminum and crude steel production hit record highs, supported by strong demand.

“The Chinese economy is showing signs of an imbalanced recovery, with strong exports and domestic investment while sluggish consumption,” said Jiwei Chang, chief economist at Pinpoint Asset Management. “.

He said the travel, leisure and entertainment sectors are large employers and are still constrained by the uncertainty of COVID-19.

According to NBS data, consumer electronics sales growth plummeted from the previous month to April, down from 38.9% in March to 6.1% year-on-year.

Julian Evans Pritchard, senior China economist at Capital Economics, said monthly retail sales growth was well below the pre-pandemic pace.

“In the future, as the labor market continues to tighten, we believe the recovery in consumption should pick up again in the coming months,” he said.

Is it time to re-evaluate?

China’s economy expanded by a record 18.3% in the first quarter, and many economists expect this year’s growth to exceed 8%.

Exports accelerated in April due to strong demand for Chinese products amid a vigorous economic recovery in the United States and stagnant factory production in other countries.

But April also slowed factory activity amid supply bottlenecks and rising costs, and policymakers acknowledged some of the recent weaknesses in the economic recovery.

“Production costs are steadily rising, leading to lower profits,” said the manager of an automotive accessory factory named Xu in Zhejiang Province, eastern China.

He said sales are increasing but relatively slow and the factory plans to reduce production accordingly.

The ruling Communist Party’s highest decision-making body said last month that the country would encourage manufacturing and private investment to recover as soon as possible.

Xi Jinping President also Politburo meeting chaired addition, the economic recovery of China is still uneven, and warned that the foundation has not yet firm.

Activity indicators on Monday also showed that fixed asset investment increased by 19.9% ​​in the first four months of the same period last year, slowing from a 25.6% increase from January to March.

According to NBS data, growth in real estate investment, real estate sales by floor area, and new construction starts by floor area are all compared to the first quarter, as policy makers are increasingly scrutinizing developer funding activities. It got cold in the first 4 months.

“The government may put monetary tightening on hold for now and observe the pace of recovery,” said Zhang of Pinpoint Asset Management.

Kevin Yao and Gabriel Crosley