Chinese Economy Loses More Momentum in April

China’s targeted growth of 7.0 percent for the year may not occur as the economy suffers from weaker consumer spending, sluggish export growth, property decline and a lack of infrastructure projects. The People’s Bank of China cut another interest rate this week, and analysts expect Chinese officials to commence more monetary easing measures and increase spending.

China’s targeted growth of 7.0 percent for the year may not occur as the economy suffers from weaker consumer spending, sluggish export growth, property decline and a lack of infrastructure projects. The People’s Bank of China cut another interest rate this week, and analysts expect Chinese officials to commence more monetary easing measures and increase spending.

The April report does not spell China’s doom, but the data shows that a sustainable economy needs more work. China’s money supply dropped 10.1 percent compared to a year before, regardless of cash injection into the economy, and the overall state of the economy is at its worst in 25 years. Investment plunged to a 15-year low, with fixed-asset investment only rising 12 percent from January to April.

China’s Primary Problems

Beijing officials must address the property market, which makes up 15 percent of the economy, and it is a large reason why the Chinese economy is losing steam. Property investment declined 6.0 percent from January to April, a fall from 8.5 percent in the first quarter. One major problem is that some in the lending community are not issuing lower borrowing costs to customers. Further, many of the loans offered are reserved for refinancing and not new project ventures that can stimulate the economy. Beijing may increase spending in the public sector to boost economic activity, but China’s credit contraction prevents more infrastructure projects. Spending has also slowed down in the private sector, most notably the mining sector, and additional spending on new projects has dropped. Many businesses are not generating enough business to pay off debt loads, and consumer spending declined, falling from 10.5 in March to 10 percent in April.

An Explanation of the Slowdown

Many are surprised and dissatisfied with China’s economic slowdown, but some analysts point out that the contraction is a transition point from an industrial economy to one based on consumerism. Because of this, many analysts further contend that China is beyond its growth peak of around 10 percent, transiting into an average 6.0 percent annually going forward. China’s shift is a sign of the nation’s monumental achievements, but the nation must be careful in towing the line between a new economy and maintaining a core manufacturing and commodity base that made the Chinese highly successful to begin with. Currently, around 40 percent of China’s GDP is spending-based. In comparison, around 70 percent of U.S. GDP is consumer-oriented. According to this trajectory, exporters of raw materials have the most to lose while U.S. companies that sell in Chinese markets will be the biggest winners.