China April data to show solid growth, but high debt poses risks

BEIJING (Reuters) - A looming flurry of Chinese data is expected to show the world’s second-largest economy maintained solid momentum in April after a surprisingly robust first quarter, but the pace is seen tapering off as Beijing turns the screws on debt risks and a hot property sector.

Labourers work on the construction site of a high-speed railway in Linyi, China April 27, 2017. REUTERS/Stringer

A Reuters poll of indicators from goods trade to industrial output as well as retail sales, loans growth and property investment signaled the Chinese economy was motoring along at a nice clip even as some moderation was evident as demand at home and abroad slackened.

The value of exports was seen rising 10.4 percent on-year, and imports up 18.0 percent, below the sizzling 16.4 percent and 20.3 percent growth rates notched in March, partly reflecting a drop in commodity prices.

The trade surplus for April was tipped at a solid $35.50 billion, rising from $23.93 billion in March.

“The economy is turning a bit more than people anticipated,” said Julian Evans-Pritchard, an economist at Capital Economics in Singapore, adding that April’s data could surprise on the downside, similar to recent PMI surveys.

“The main leading indicator is that since last summer, credit growth has been slowing. Often it takes a while for slower credit growth to show up in the data,” he said, noting tightening measures currently underway were also putting the brakes on growth.

China’s central bank has cautiously shifted to a tightening policy bias in recent months after years of ultra-loose settings led to an explosive build-up of debt, forcing authorities to take steps to defuse bubbles in the economy.

Policy makers have continued their efforts to cool the property sector, announcing a range of steps over the past several months.

The People’s Bank of China (PBOC) has nudged up short-term interest rates several times already this year and further modest increases are expected, especially if U.S. rates continue to rise, which could risk a resurgence in capital outflows from China.

To this extent, investors will be watching to see whether March’s stabilization of foreign reserves will extend into April, which might suggest Chinese authorities had stepped back from FX intervention.

The poll tipped China’s foreign exchange reserves to have edged up in April to $3.02 trillion, from $3.009 trillion in March, during which a pause in the dollar’s rally aided Beijing’s efforts to contain capital outflows.

In the first quarter, a property boom helped boost the industrial sector and lifted China’s growth to a solid 6.9 percent, though polls for April showed a tempering of the pace.

China’s producer price index (PPI), for instance, was seen rising 6.9 percent from a year earlier, slowing from a 7.6 percent rise in March.

The PPI cooled for the first time in seven months in March as iron ore and coal prices tumbled, pressured by fears that Chinese steel production is outweighing demand and threatening a glut of the metal later this year.

Inflation is also expected to show only a modest pick up, with the consumer price index predicted to rise 1.1 percent in April, after increasing 0.9 percent in March. The milder inflationary pressures suggest policymakers will have room to tighten credit, and reduce risks in the financial system after years of debt-fueled stimulus.

Beijing is targeting consumer inflation at 3 percent this year, unchanged from 2016.


Industrial output is expected to rise 7.1 percent in April, slowing from 7.6 percent in March when it rose the fastest on a yearly basis since December 2014.

Fixed asset investment probably stayed relatively stable at 9.1 percent in April, from 9.2 percent in March, while retail sales were seen up 10.6 percent, down slightly from 10.9 percent in March.

Loan data will be another key indicator watched by markets for signs of whether authorities are sticking to credit-fueled stimulus despite official warnings about the risks from a rapid build-up in debt.

The poll predicted Chinese banks had extended 714.0 billion yuan in new loans in April, down from 1.02 trillion yuan in March, though part of that was seen as a payback from the prior month’s solid numbers and not necessarily the start of a sharp slowdown.

A surge in household lending in March added to worries about whether authorities will be able to get the frenzied property market under control, even as cities roll out increasingly stringent curbs on home buying.

Banks extended the third highest loans on record for a single quarter in Q1, totaling 4.22 trillion yuan in January-March.

The first quarter is usually the busiest of the year for Chinese banks, when they have a fresh annual quota and look to lock up key clients.

The growth rate of outstanding loans was expected at 12.5 percent in April, versus 12.4 percent in March which was the slowest since July 2002.

M2 money supply growth was seen up a touch at 10.8 percent in April, from 10.6 percent in March when it hit a more than 6-month low, reflecting the moderately tighter policy stance by the PBOC.

Reporting by Sue-Lin Wong; Editing by Shri Navaratnam