China economy better but vital consumer demand still feeble

BEIJING (AP) — Factory output rose in April as China’s virus-battered economy reopened but job losses depressed consumer spending, a key driver of growth, challenging the ruling Communist Party’s push to revive normal activity. Investment in factories and other fixed assets also improved as businesses reopened after China’s deepest economic slump since at least the 1960s, official data showed yesterday. China, where the pandemic began in December, was the first economy to shut down to fight the virus and the first to start reopening in March.

Automakers and some other manufacturers said production is back to normal, but retailing and other industries are struggling. Yesterday’s report “shows only small and gradual improvements in economic activity,” Iris Pang of ING said in a report.

The ruling party has handed out shopping vouchers, cut taxes and promised entrepreneurs low-interest loans after first-quarter activity shrank 6.8 per cent from a year earlier. Still, forecasters expect little to no economic growth this year.

Factory output rose 3.9 per cent in April from a year earlier, an improvement over the previous month’s 1.1 per cent contraction. Manufacturers have been hurt by weak demand for exports in the United States (US), Europe and other major markets that have closed to fight the virus.

Consumer spending, a major economic driver, shrank 7.5 per cent from a year earlier, depressed by widespread job losses. That was an improvement on March’s 15.8 per cent contraction but still dragged on overall growth. Economic growth “now relies largely on domestic demand,” said Tommy Wu of Oxford Economics in a report.

“Improvement in consumption momentum is likely to continue, albeit from a weak starting point.” The scale of job losses as retailers, restaurants and export-driven factories close due to lack of demand is unclear but private sector analysts said the total could run as high as 30 million.

Investment in fixed assets, the second-biggest driver of economic growth, shrank by 10.3 per cent from a year ago but that was better than the first quarter’s 16.1 per cent contraction. Consumer inflation eased to 3.3 per cent over a year ago from March’s 4.3 per cent, but food costs surged 14.8 per cent.

That was driven by a 96.9 per cent jump in the price of meat due to an outbreak of African swine fever that has disrupted supplies.

A couple walks through the capital city’s popular shopping mall in Beijing. PHOTO: AP