Weakening momentum tests nation's resolve to restructure

'New norm' of slower growth indicates the leadership wants quality, not quantity

Statistics for April have confirmed that economic momentum in China continued to weaken from March, testing the leadership's resolve to tolerate slower growth while pursuing long-term restructuring.

In the latest sign of the nation's determination to push reforms, President Xi Jinping said last week the country must adapt to a "new norm" of economic growth and remain "cool-minded" amid a slowing economy.

China's growth fundamentals haven't changed, and the country is still in a "significant period of strategic opportunity", Xi said, according to a Xinhua News Agency report on Saturday.

According to the National Bureau of Statistics, industrial output rose 8.7 percent year-on-year in April - the slowest pace in five years - following an 8.8 percent gain in March.

Fixed-asset investment, a key driver of growth in recent years, grew 17.3 percent in the first four months of the year. That was weaker than the 17.6 percent rise during the first quarter, and it was a steep drop compared with 2013, when investment rose 19.6 percent for the full year.

Real estate investment, a key component of fixed-asset investment, expanded 16.4 percent in the first four months, slower than the 16.8 percent gain in the first quarter.

Construction starts, which are highly sensitive to shifts in market sentiment, slumped 22.1 percent year-on-year during the first four months in terms of area. That plunge threatens to intensify the economic deceleration and increase the government's challenges in achieving its expansion goals.

Retail sales disappointed analysts, rising just 11.9 percent in April from a year earlier, the weakest growth in more than five years.

Electricity production grew 4.4 percent to 425 billion kilowatt hours in April, the lowest level in 11 months, the NBS said.

All figures released on Tuesday were below the expectations of analysts, who'd believed that growth momentum picked up slightly from March.

The Consumer Price Index for April, released last week, signaled sluggish domestic demand. The index hit an 18-month low of 1.8 percent.

"The economy is still slowing," Wang Tao, chief China economist at UBS AG in Hong Kong, said in a note.

The government's "mini-stimulus" has not yet turned around growth momentum," and the government may ease credit by loosening restrictions on lending to homebuyers and local government financing vehicles, Wang said.

The most important figures are the ones showing a "continued decline in property sales and new starts," Wang said. "The latest data are indeed worrisome."

Already, financial officials have told banks to accelerate home loan approvals and ensure that mortgages are "reasonably" priced, according to the People's Bank of China statement on Tuesday.

Top officials so far have publicly ruled out any massive stimulus package. Instead, they've introduced smaller measures, including a cut in rural banks' required reserve ratio, tax breaks for small enterprises and increased spending on subsidized housing and rail projects.

Central bank Governor Zhou Xiaochuan said at a Saturday meeting that China will not resort to any large-scale stimulus to boost the economy. Rather, it will only "fine-tune" its policy to counter economic cycles.

Many economists argued the stimulus measures so far aren't sufficient and called for stronger quantitative easing to boost growth.

"If the government still believes that achieving a 7.5 percent growth target is important for its credibility, China's monetary policy will have to play its necessary role by easing further in order to help pull the economy out of a state of lethargy," Liu Ligang and Zhou Hao, analysts at Australia and New Zealand Banking Group Ltd said in a report.

But Niu Li, a senior economist with the State Information Center, a government think tank, said it takes at least three months for central government stimulus policies to take effect, and latest measures were only announced in early April.

"The key is, you have to understand the reasons behind China's slowdown. Major problems remain, including overcapacity, housing market adjustment and local governments' mounting pressure to repay massive debts they took on in the past few years.

"Unless these problems are solved, it's pointless to stimulate. We've seen this happen before: Growth picks up after a government stimulus but then soon drops," Niu said.

He contended that it's not a major problem if GDP growth falls short of 7.5 percent, as long as structural problems are tackled.

Chen Hufei, an economist at Bank of Communications Ltd, said detailed NBS numbers for April showed that although industrial output growth has dipped, conditions are much better at the downstream end of industrial chains than at the top.

As processing trade activity improves, downstream sectors will pick up this month and next, helping pull up industrial output from the April basis.

Premier Li Keqiang said last week in a speech in Nigeria that China has the ability to achieve this year's growth goal.