The Chinese economy is showing weaknesses in the run-up to Friday’s figures

BEIJING – As China’s economy enters the second quarter of the year, a few indicators point to sluggish growth if things don’t turn around, raising expectations for an easing of monetary policy.

The National Bureau of Statistics will release data on retail sales, industrial production and fixed investment for April on Friday. Analysts consulted by Reuters expect a slight increase from Tuesday compared to March.

That same day, China plans to issue its first ultra long binding – 30 years in term – as Beijing launches a previously announced program totaling 1 trillion yuan ($138.25 billion) in funds for major strategic projects. The Ministry of Finance has not specified what the first tranche will be used for.

“Given that the issuance runs through November, it is likely that some of the proceeds (and therefore benefiting the economy) will not appear until the first half of next year,” said Louise Loo, chief economist at Oxford Economics , in a note on Tuesday.

The company expects this week’s economic data releases to show a “weakening of economic momentum”, confirming the forecast that the central bank will cut interest rates by the end of June.

The central government’s bond program comes as the negative impact of real estate continues, while businesses and consumers remain largely conservative in their spending.

The People’s Bank of China released new loan data for April this weekend that showed a sharp decline in demand, with several figures at the lowest levels in at least two decades.

Goldman Sachs and analysts at other companies were quick to point out that the one-month figures were affected by changes in the way official data is calculated, and a crackdown on loans used for financial purposes rather than business expansion.

“Some of the weakness speaks to real sluggish demand in China at the moment,” Hui Shan, chief economist at Goldman Sachs China, said in a note on Sunday.

Outstanding Chinese yuan loans grew at an annual rate of 9.6% in April, the same pace as March and the lowest since records began in 1978, according to official data accessed through Wind Information.

New bank loans to companies and government organizations fell sharply in April compared to March, as did new loans to households, according to official data accessed through Wind Information.

What worries analysts at Clocktower Group is that the 12-month moving average for both categories of new loans is trending downward for the first time since the 2008 financial crisis.

“If the public sector does not step up to support credit growth in a timely manner, there is likely to be a sharp slowdown in growth in the future as economic actors will be forced to cut back on consumption and investment to meet their debt obligations,” he said. the company in its late publication. April.

On a 12-month moving average basis, the category of new bank loans, including corporates, rose slightly in April from March, while new household loans fell over the period, according to a CNBC analysis of data provided through Wind. obtained.

The amount of loans to new businesses is still much higher than in 2019, although that from households has fallen below that level, the data show.

A survey by The China Beige Book in April showed that corporate loans fell, led by the services sector, while demand in manufacturing increased. The overall decline came despite more loans being approved and interest rates falling, making it cheaper to borrow.

M2a measure of the money supply that includes cash, cash equivalents and certain deposits, grew 7.2% in April from a year ago, with the slowest pace on record going back to 1986, according to official data accessed through Wind Information.

“Looking ahead, CNY new loan growth and M2 could gradually slow further as the PBOC highlighted the weakening relationship between economic growth and credit expansion,” Goldman analysts said in a separate report on Sunday, citing the central bank’s data. quarterly monetary policy report released Friday.

“We continue to expect two more cuts in reserve requirements and one cut in the policy rate for the remainder of this year,” they said.

RRR refers to banks’ reserve requirements, or the amount of cash they must have on hand. PBOC Governor Pan Gongsheng told reporters in March that there was room to further reduce that reserve requirement.

“April credit data is disappointing, but that is mainly due to regulatory changes rather than a sharp deterioration in underlying demand,” Macquarie’s chief China economist Larry Hu said in a report.

“Policymakers do not want another credit-driven recovery. Instead, they are happy to rely on exports and new energy sectors to drive growth, at least for now,” he said. He expects exports to remain on track for 5% growth this year, while he notes that the auto sector has done well.

Chinese exports have held up despite rising trade tensions. Data released last week showed exports grew year-on-year in April, by 1.5% and in line with expectations, while imports grew much faster than expected.

Separate figures released this weekend showed a modest increase in consumer prices in April. But the price benchmark in factories continued to fall.

However, real estate, which once contributed to at least a quarter of China’s economy, remains a drag despite a growing number of cities easing purchasing restrictions.

Real estate sales are increasingly shifting to the secondary market, meaning developers aren’t benefiting much in a market still “looking for a bottom,” S&P Global Ratings said in a report early last week.

S&P analysts expect the Chinese housing market to shrink by 16% this year.

The Chinese house price index will also be published on Friday. Looking further ahead, investors are looking forward to a major government meeting scheduled for July that will provide signals about longer-term economic policy.

“Separately, the PBOC suggests it will study policies to help digest existing housing stock and improve the supply of new housing to stabilize the real estate market,” Morgan Stanley analysts said.

“We think this reflects the message of the recent Politburo meeting on the real estate market, and shows that monetary policy could potentially be used as part of the support measures to help China with its significant real estate stock.”

– CNBC’s Michael Bloom contributed to this report.