Following months of warnings that China’s economy is slowing down as a result of not only a collapse in China’s credit impulse but also tighter monetary conditions, as well as rolling over loan growth which has pressured both CPI and PPI – i.e., the global “reflation trade” – as the following chart from Bloomberg’s David Ingels shows…
… and culminating over the weekend with a warning in no uncertain terms from Citi, which said that at least four key economic indicators are “starting to wave red flags” among which:
- The Markit PMI is starting to turn over
- China’s Inflation Surprise Index – a leading indicator to global inflation metric – has posted a recent sharp drop
- China’s import trade has likewise tumbled after surging recently
- Chinese Iron Ore imports into Qingado port have plunged
… moments ago China’s National Bureau of Statistics validated the mounting fears, when it reported misses across all key economic categories for the month of April, as follows:
- Retail Sales 10.7% Y/Y, Exp. 10.8%, Last 10.9%
- Fixed Asset Investment 8.9% Y/Y, Exp. 9.1%, Last 9.2%
- Industrial Output 6.5% Y/Y, Exp. 7.0%, Last 7.6%
- Industrial Production YTD 6.7% Y/Y, Exp. 6.9%, Last 6.8%
Additionally, confirming that China is backsliding into its old, “polluting, excess industrial capacity ways, China’s coal output rose to 294.5m tons last month, or up 9.9% Y/Y despite China’s so-called production curbs for “dirty industries”, even as oil processing declined by 0.6% Y/Y while out output fell 3.7% Y/Y, confirming that more pain may be in store for OPEC as Chinese demand continues to wane, forcing OPEC to cut even more output. In a sliver of silver lining, the NBS also reported that April power output rose +5.4% to 476.7b kwh while natgas output rose +15% to 12.2b cubic meters.
Finally, in yet another indication that Chinese bubble creation and capital misallocation is back front and center, the NBS also reported that new property construction in April surged 482MM square meters, or +11.1%Y/Y for the Jan-April YTD period, while April home sales jumped 7.7% Y/Y.
Bottom line: the economy is once again slowing down as China’s unprecedented excess liquidity is once again focusing on blowing bubbles, whether in old, inefficient industries or more disturbingly, housing.
It also means that the PBOC is once again trapped, as any attempts to ease monetary conditions will result in a blow off top in China’s housing bubble, its third for the past 4 years, which also risks yet another housing hard-landing, wiping out trillions in “household net worth” for China’s citizens.