China's Economy Slows in April as Trade War Impacts Retail Sales, Real Estate, Investment

# Signs of Economic Slowdown in China Amidst Escalating U.S. Trade Tensions China's economy is showing signs of a slowdown due to the ongoing U.S.-China trade war initiated by President Donald Trump in April. Indicators such as retail sales, the property market, and investment growth have missed economists' expectations, underscoring the difficulties faced by the world’s second-largest economy. The imposition of steep tariffs—145% on Chinese goods by Trump, with China’s retaliatory 125% duties—has dampened industrial production and export volumes. This escalating trade confrontation raises concerns about sustained industrial and consumer activity. Fu Linghui, spokesperson for China’s National Bureau of Statistics, attributed the deceleration to "heightened external shocks," while asserting that the overall economic outlook remains positive. He warned that "external instability and uncertainties continue to present significant challenges" and emphasized the need to strengthen the foundation for sustained economic recovery and growth. Several key data points released this week provide a closer look at China’s economic condition. # Retail Sales Growth Disappoints Chinese consumers, affected by a prolonged slump in the housing market—a significant source of household wealth—are spending less. Retail sales in April rose by 5.1% year-over-year, falling short of the anticipated 6% growth. Fu emphasized that the Chinese government will continue to focus on job creation and boosting domestic demand to counteract the slowdown. He also underlined the importance of preventing deflation and maintaining price stability. China's Consumer Price Index (CPI) dropped by 0.1% in April, indicating potential deflation. Falling prices often reflect weak consumer demand and can lead to deferred spending as consumers await better deals. Fu stated, “The current low overall price levels are burdening production and corporate operations while also impacting employment and income. Enhancing rational price recovery is crucial.” In contrast, in the U.S., consumer confidence in May declined for the fifth consecutive month, as Americans grow worried that the trade war will heighten inflation pressures. # Sluggish Industrial Production Industrial production growth slowed down in April, growing by 6.1% year-over-year compared to 7.7% in March. The impact of tariffs and trade barriers has hurt exports and dampened manufacturing activity. Fu noted that the temporary truce in the U.S.-China trade war has provided some relief, benefiting bilateral trade and aiding global economic recovery. The 90-day tariff postponement allowed more time for negotiations, which offered companies relief as they rushed to meet seasonal deadlines. However, even before President Trump’s first term, China faced increasing pressure from trade partners over its heavy dependence on exports to mitigate excess industrial production. If supply continues to outstrip demand, prices are likely to face downward pressure. Louis Lu of Oxford Economics warned, “China’s export-driven recovery in factory output may persist, supported by its competitive manufacturing costs and a rush of orders before the 90-day truce ends, but this could also worsen ongoing deflationary risks.” # Investment and Real Estate Face Pressures Fixed-asset investment, which measures spending on infrastructure, machinery, and equipment, rose by 4% for the year through April, according to government data. However, real estate investment dropped sharply, down 10.3% year-over-year for the January-April period. New home prices also saw a modest decline. While manufacturing activity has been more resilient than expected, trade tensions have impeded government efforts to rejuvenate the housing market and stabilize economic recovery. Iris Pang, Chief China Economist at ING Economics, stated, “The recovery in the property market has been uneven and remains gradual, suggesting it will take time for the market to reach a nationwide bottom." She added, "Tariff-related pessimism and uncertainty may have led more prospective buyers to hold back in April." Overall, the trade war's ripple effects are impacting multiple sectors of China’s economy, presenting policymakers with significant challenges as they navigate the dual pressures of external uncertainties and internal economic vulnerabilities. Global markets continue to monitor the ongoing negotiations between Washington and Beijing closely.