China's economy slows in April as trade war blues hit retail sales, housing and investment

Key Points

• Retail sales grew 5.1% in April, missing the 6% forecast, while the consumer price index fell 0.1%, signaling emerging deflationary pressures that could dampen spending.
• Industrial production slowed to 6.1% growth from 7.7% in March as Trump’s and Beijing’s mutually high tariffs weighed on exports, although a 90-day truce has temporarily revived shipments.
• Fixed-asset investment rose 4% in the first four months of 2019, but property investment plunged 10.3% year-on-year and new home prices drifted lower, reflecting ongoing weakness in the housing market.

China’s economy showed signs of slowing in April as President Donald Trump's trade war took a toll, with retail sales, property and investment coming in weaker than economists had forecast.

Industrial production slowed as Trump's painfully high tariffs of up to 145%, and 125% retaliatory duties imposed by Beijing, took effect and shipments were curtailed.

National Statistics Bureau spokesperson Fu Linghui said the general trend was positive though he pointed to “external shocks” that had gained intensity.

“It should also be noted that there are still many outside unstable and uncertain factors, and the foundation for the continued recovery and improvement of the national economy needs to be further consolidated,” Fu said.

Here are a few key indicators reported Monday.

Retail sales

Chinese consumers have been holding back after the shocks of a prolonged downturn in the housing market that is the source of much household wealth. Retail sales rose 5.1% from a year earlier in April, below economists' expectations for a 6% increase.

Fu said Beijing would continue to focus on supporting job creation and spurring more domestic demand.

He also said China must stop prices from falling. The consumer price index fell 0.1% in April. Such deflation is both a symptom of weak demand and also a factor behind shoppers' reluctance to spend, in hopes of getting better deals later.

“The current overall price level is low, which puts pressure on production and companies' operations and affects jobs and incomes, so it's important to promote a reasonable recovery of prices,” Fu said.

On the U.S. side, consumer sentiment has fallen slightly in May for the fifth straight month, with Americans increasingly worried that the trade war will worsen inflation.

Manufacturing

Industrial production rose 6.1% from a year earlier, slowing from 7.7% in March as tariffs and other trade barriers bit into exports.

The truce in Trump's trade war with China has helped, Fu said, calling it “conducive to the growth of bilateral trade and the recovery of the world.”

With tariffs paused for 90 days to allow time for talks, shipments have revived as businesses rush to meet back-to-school and other seasonal deadlines.

But even before Trump took office for the second time in January, China was under pressure from its trading partners for relying too heavily on exports to absorb its excess industrial production.

And if output continues to outpace demand from businesses and consumers, prices will keep falling.

“Export-driven gains in factory output could continue given China’s manufacturing competitiveness and frontloaded orders before the end of the 90-day truce, but this is coming at a persistent deflationary cost,” Louise Loo of Oxford Economics said in a report.

Investment and property sales

The government reported that fixed asset investment in such things as factories and equipment rose 4% in April in the first four months of the year.

However, property investments fell 10.3% year-on-year in January to April. New home prices also edged lower.

While manufacturing held up better than expected, the pressures from trade are complicating Beijing's effort to keep turn the housing market around and keep the economic recovery on track.

“Establishing a trough on a national level is taking some time, as the recovery of the property market remains uneven and gradual. It’s possible that tariff-related pessimism and uncertainty kept more buyers on the sidelines in April,” Lynn Song, chief economist for Greater China at ING Economics said in a report.