China's economy takes a breather

Economists expect China's growth to ease to 6.5 per cent this year, inline with Beijing's target.

Growth in China's vast manufacturing sector eased only slightly in April in a sign of broad economic resilience, though slowing export orders pointed to risks to the outlook amid a simmering Sino-US trade row.
Beijing is in the third year of a broad effort to curb a dangerous build up of debt across the economy, and so far policy makers appear to have successfully steered through the challenge of tempering financial risks without imperilling growth.
The official Purchasing Managers' Index (PMI) fell to 51.4 in April, from 51.5 in March, the National Bureau of Statistics (NBS) said on Monday, but remained well above the 50-point mark that separates growth from contraction on a monthly basis. It marked the 21st straight month of expanding business conditions in China.
Analysts surveyed by Reuters had forecast the index would ease slightly to 51.3.
But the slightly softer reading, especially the slower export orders, adds to concerns about an expected loss of momentum in the world's second-largest economy, as policymakers navigate debt risks and a heated trade row with the United States.
"The support to the economy from the easing of pollution controls should now largely have run its course," said Chang Liu, China economist at Capital Economics in a note to clients.
"Slower growth is likely in the months ahead as the drags on economic activity from weaker credit growth and the cooling property market intensify."
Signs of softness in the trade sector were already evident in the latest PMI, with the export orders sub-index falling to 50.7 from 51.3. Total new orders also eased slightly, though the sub-index for output remained steady.
There are worries that the tech sector, which burnished China's solid exports growth in 2017, could come under pressure as the rising tensions between China and the United States threaten to hit billions of dollars in cross-border trade. The hi-tech manufacturing sub-index, however, pushed up this month to 53.8, compared with 53.2 in March.
"Hi-tech manufacturing continues to lead," said Zhao Qinghe, a senior statistician with NBS, in a separate comment.
Economists expect China's economic growth to ease to 6.5 per cent this year, inline with Beijing's target but below a forecast-beating 6.9 per cent in 2017, with a regulatory crackdown on the country's finance sector and the growing trade dispute with the United States seen as key risks, a Reuters poll showed.
Boosted by government infrastructure spending, a resilient housing market and unexpected strength in exports, China's manufacturers helped the economy deliver strong growth last year, but signs of stress have started to emerge in softer industrial demand, slower investment growth, and a subdued property market. Producer prices have also weakened in the past several months.
Speculation is also growing that Beijing is considering shifting its monetary policy to a looser bias, as the threat of an all-out trade war with the United States clouds the outlook for key growth drivers of both China's "old economy" heavy industries and "new economy" tech firms.
Nomura analysts saw no immediate need to boost stimulus. "The still solid PMI suggests to us that there is no urgent need to move towards a more expansionary fiscal or monetary policy, and that the focus should remain on a gradual and orderly deleveraging to reduce financial risks," the analysts wrote in a note to clients.
The services industry showed "steady development", NBS said. The official services PMI rose to 54.8 from 54.6 in March, extending a solid run of activity.
The services sector accounts for over half of China's economy, with rising wages giving Chinese consumers more spending power.
The composite PMI covering both manufacturing and services activity rose to 54.1 in April, from March's 54, well above the 50-mark that separates expansion from contraction.
The raw materials sub-index declined slightly, with the purchasing price of major raw materials also falling from March. At the same time, the ex-factory price index rebounded to 50.2, from 51.5 in the previous month. The reduction in the difference between the product ex-factory price index and the purchase price index of major raw materials will "benefit the improvement of corporate profits," Zhao said.
Activity in the construction sector, a major driver of growth in 2017, was almost steady with only a very modest pullback seen this month, the PMI survey showed.