China's Economy Stumbles in April Amid Global Headwinds

Cheng Xin | Getty Images News | Getty Images

China's economy stumbled in April with consumption, industrial output and investment growth missing expectations as the fallout from the Iran war dampened momentum in the world's second-largest economy.

Retail sales grew 0.2% last month from a year ago, sharply missing economists' forecast for a 2% rise and slowing from 1.7% in March, according to data released by the National Bureau of Statistics on Monday. That marked the weakest growth since December 2022, according to Wind data, as China started to loosen its Covid curbs.

China's industrial output jumped 4.1% in April from a year earlier, decelerating from 5.7% growth in March, and undershooting expectations for a 5.9% rise in a Reuters poll.

Urban fixed asset investment, including real estate and infrastructure, contracted 1.6% in the first four months this year from a year earlier, compared with expectations for 1.6% growth. In the January to March period, urban investment had expanded 1.7% year on year.

The investment decline was owed to the property sector, with flows plunging 13.7% this year as of April, deepening from the 11.2% drop in the first three months. Investment in infrastructure and manufacturing grew 4.3% and 1.2%, respectively, in the first four months.

Property investment in the country has nearly halved since its peak in 2021. Further declines in home prices would deepen the hit to household balance sheets, said Lizzi Lee, a fellow at Center for China Analysis, noting that the property downturn has already inflicted significant job losses across construction and related sectors.

Separate data released Monday showed China's new home prices extended their decline in April, albeit at a slower pace, as the multi-year property downturn drags on.

The strong exports helped to mitigate the weaknesses in domestic demand, but not enough to fully offset it, said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management.

China's exports gathered pace in April as factories scrambled to meet surging overseas demand from foreign buyers stockpiling goods as the Iran fanned fears of higher input costs. Exports expanded 14.1%, sharply beating estimates of a 7.9% growth.

Urban unemployment rate edged lower to 5.2%, from 5.4% in March, data released Monday showed.

While Chinese exports to the U.S. have seen a drop, Washington said Sunday that Beijing had agreed to purchase at least $17 billion of American agricultural products in 2026 and in the following two years, as well as an initial 200 jets from Boeing , following a high-profile meeting between U.S. President Donald Trump and China's Xi Jinping last week.

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The two countries also agreed to set up a U.S.-China Board of Trade and Board of Investment to address concerns over market access and expand trade under a tariff-reduction framework.

The Trump administration appears to be backing away from its earlier stance of "explicitly demanding deep structural reform" of China's economy — a push to shift growth away from exports toward domestic consumption, said Tommy Xie, head of Asia macro research at OCBC Bank.

Washington and Beijing increasingly understand that a full-scale decoupling, or an "uncontrolled conflict" could impose enormous costs on their own economies, Xie said in a note on Monday.

Energy strains, weak demand test recovery

During a press briefing Monday, Fu Linghui, spokesman for China's statistics bureau, warned that the volatility in energy markets and supply chain disruption stemming from the Middle East conflict continue to cloud the global economic recovery, while playing up the country's efforts related to the renewable energy transition.

Crude oil refining volumes in the country fell for a second straight month in April, dropping 5.8% from a year earlier — the steepest decline since August 2024 — while its crude output climbed 1.2% from a year earlier.

A war-driven surge in commodity costs also pushed producer and consumer prices higher in April, with factory-gate prices snapping a years-long deflationary streak to hit a 3-year high.

Producer prices growth in April outpaced consumer price gains for the first time since July 2022, with OCBC's Xie suggesting companies will absorb a large part of the commodity shock rather than pass it fully to consumers.

Fu also stressed that more work needs to be done to boost domestic demand, urging businesses to improve their offerings to attract consumers. Beijing has made boosting domestic consumption a growth priority this year but so far its stimulus measures have yielded modest results.

Spending on cultural, tourism, sports and entertainment activities emerged as a bright spot, Fu said, with service retail sales expanding 5.6% in the first four months — outpacing overall retail sales growth of 1.9%.

Analysts expect Chinese policymakers to stand pat on stimulus measures until there are further signs of economic deterioration.

Beijing will likely remain in a wait-and-see mode and reassess its policy stance in July after the second quarter GDP data, Zhang said. China's economy appeared to be starting the year on a strong note, with GDP growth accelerating to 5% in the first quarter.