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Covid lockdowns weigh on retail, industrial production data

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The persistent spread of Covid and resulting stay-home orders — primarily in Shanghai — forced factories to shut or operate at limited capability in April. Pictured here on May 12 is a refrigerator factory in Hefei, China, a few five hours’ drive from Shanghai.

Xie Chen | Visual China Group | Getty Images

BEIJING — China reported a drop in retail sales and industrial production in April — far worse than analysts had expected.

Retail sales fell by 11.1% in April from a yr ago, greater than the 6.1% decline predicted in a Reuters poll.

Industrial production dropped by 2.9% in April from a yr ago, in contrast with expectations for a slight increase of 0.4%. The output of mining and utilities businesses grew.

But manufacturing fell by 4.6%, mostly dragged down by a slump within the auto sector and equipment manufacturing, said Statistics Bureau Spokesperson Fu Linghui. Along with Covid, he said industrial production faces pressure from insufficient market demand, rising costs and other aspects.

Last month, the persistent spread of Covid and resulting stay-home orders — primarily in Shanghai — forced factories to shut or operate at limited capability.

The “increasingly grim and sophisticated international environment and greater shock of [the] Covid-19 pandemic at home obviously exceeded expectation, recent downward pressure on the economy continued to grow,” the statistics bureau said in a press release. The bureau said the impact of Covid is temporary and that the economy “is predicted to stabilize and get well.”

Fixed-asset investment for the primary 4 months of the yr rose by 6.8% from a yr ago, barely missing expectations of seven% growth. Investment in real estate declined by 2.7%, while that in manufacturing rose by 12.2.% and that in infrastructure rose by 6.5%.

China’s passenger automobile production dropped by 41.1% year-on-year in April, in line with the China Passenger Automotive Association. The auto sector in China accounts for about one-sixth of jobs and roughly 10% of retail sales, in line with official figures for 2018 compiled by the Ministry of Commerce.

Auto sales dropped by 31.6% in April from a yr ago, the statistics bureau data showed. That was higher than the height of the decline in early 2020 — down 37% year-on-year in January and February that yr — but worse than the 0% year-on-year change recorded for April 2020.

We consider local lockdowns will still severely impact the production-end of the economy in May and consider a fast turnaround as all but unattainable.

Ting Lu

Chief China Economist, Nomura

Catering sales plunged by 22.7% — higher than a 31.1% year-on-year drop in April 2020. Restaurants in Shanghai were essentially closed in April, while Beijing city’s ban on dining in restaurants only took effect in early May.

Inside retail sales, only beverages, medicine, food and petroleum products saw year-on-year growth.

“Although Covid case numbers have declined markedly from the height in mid-April, the unwinding of lockdowns has been extremely slow, due partly to the caution amongst local government officials,” Ting Lu, Chief China Economist at Nomura, said in a note. “Subsequently, we consider local lockdowns will still severely impact the production-end of the economy in May and consider a fast turnaround as all but unattainable.”

Shanghai city announced Sunday that it might start to permit restaurants to reopen progressively, and said Monday town aimed to resume normal production and life by the center of June.

Jobless rate ticks higher

The unemployment rate in China’s 31 largest cities climbed to a recent high of 6.7% in April, in line with data going back a minimum of to 2018.

The unemployment rate across cities rose by 0.3 percentage points from March to six.1% in April. The jobless rate amongst those aged 16 to 24 was nearly 3 times higher at 18.2%.

For an extra sense of the dimensions of economic slowdown in April, other data showed a slump in business and household demand for loans.

Read more about China from CNBC Pro

Total social financing — a broad measure of credit and liquidity — roughly halved last month from a yr ago to 910.2 billion yuan ($134.07 billion), the People’s Bank of China said late Friday.

Nonetheless, Macquarie’s Chief China Economist Larry Hu said he expected the drop in credit demand can be short lived. He identified that on Sunday, the central government took its “first motion … to avoid wasting property” by cutting mortgage rates for first-time homebuyers.

The speed, which used to follow the five-year loan prime rate as a benchmark, is now 20 basis points below that.

“Today’s cut is removed from enough to show the property sector around, but more property easing would come,” Hu said in a note Sunday.

Real estate and related industries account for a few quarter of China’s GDP, in line with Moody’s.

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