China’s data missed expectations as the economy showed an uneven recovery

  • Reuters economists expected Chinese industrial production to jump 10.9% in April and retail sales to rise 21%.
  • Chinese stocks have given back most of the gains they have seen this year, with the Shenzhen component down 9.5% from its peak in early February.

YANGZHOU, CHINA – MAY 02: An aerial view of tourists visiting Dongguan Street during the Labor Day holiday on May 2, 2023.

Vcg | China Optical Group | Getty Images

Chinese economic data for April came in broadly below expectations as the economy continued to show an uneven path to recovery from the impact of severe Covid restrictions.

Industrial production for April rose 5.6% year-on-year, compared to the 10.9% expected by economists in a Reuters poll. The number rose 3.9% in March after a muted start to the year.

Retail sales rose 18.4% – short of economists’ expectations for a 21% increase.

Fixed asset investment increased by 4.7% against expectations of 5.5%. The reading rose 5.1% in the previous month.

“China is in a recovery phase, compared to last year, the numbers are positive as we just saw, but is the recovery good enough for the market, is the recovery good enough to meet investors’ expectations — that’s the big question here,” said Winnie Wu, equity analyst at Bank of America Securities. Finance in China, for CNBC’s “Street Signs Asia.”

“It’s not good enough to meet investors’ expectations — that’s a problem,” Wu said, adding that the momentum from pent-up Chinese demand appeared to be fading.

“It will take time to restore income, job security and confidence,” she said.

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Chinese stocks pared most of the gains seen this year. The Shenzhen component is down 4.67% sequentially and up just 1.48% year-to-date, posting a 9.5% drop from its peak in early February.

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“Market sentiment remains very weak in our conversations with our clients,” Goldman Sachs economist Hui Shan wrote in a report on Sunday.

It expects more action from the government rather than changing interest rates to improve market confidence.

“Symbolic measures aimed at boosting confidence, such as cuts to the cash reserve ratio, seem more likely to us, particularly at the end of the quarter when demand for liquidity is high,” she wrote, referring to the banks’ reserve ratio – the amount of money banks need to hold as reserves. .

The most recent data included the youth unemployment rate of 20.4%, and the unemployment rate between the ages of 16 and 24. The reading in April hit a record high.

“Many people and investors see this as a leading indicator. If young people can’t get jobs, they don’t have income security, where is the confidence, and where does the consumption boom come from?” Wu said.

She said the issue of confidence resonates with weaker market sentiment as well as other high-frequency data, including new home sales.

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