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China’s retail sales growth slumps to 16-year low as trade war risks rise

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Photo taken on May 18, 2017 by a drone shows the Haicang port area in Xiamen, southeast China's Fujian Province. Xinhua/Jiang Kehong

BEIJING (Reuters) – China reported surprisingly weaker growth in retail sales and industrial output for April yesterday, adding pressure on Beijing to roll out more stimulus as the trade war with the United States escalates.

Clothing sales fell for the first time since 2009, suggesting Chinese consumers were growing more worried about the economy even before a US tariff hike on Friday heightened stress on the country’s struggling exporters.

Overall retail sales in April rose 7.2 percent from a year earlier, the slowest pace since May 2003, data from the National Bureau of Statistics (NBS) showed. That undershot March’s 8.7 percent and forecasts of 8.6 percent.

The data suggested consumers were now beginning to cut back spending on everyday products such as personal care and cosmetics, while continuing to shun more expensive items such as cars.

“Weak retail sales partially stemmed from a deterioration in employment and declining income of the middle-and-low income groups,” said Nie Wen, an economist at Hwabao Trust.

“In terms of future policies to keep consumption as the stabiliser of the economy, China might roll out targeted tax cuts or subsidies to the middle-and-low income groups.”

As a whole, Chinese data for April largely pointed to a loss of momentum, after surprisingly upbeat March readings had raised hopes the economy was slowly getting back onto firmer footing and would require less policy support.

Growth in industrial output slowed more than expected to 5.4 percent in April on-year, pulling back from a 4-1/2-year high of 8.5 percent in March, which some analysts had suspected was boosted by seasonal and temporary factors.

Analysts polled by Reuters had forecast output would grow 6.5 percent.

Motor vehicle production dropped nearly 16 percent as demand weakened, with sedan output slumping 18.8 percent, the steepest decline since September 2015. Industry data this week showed auto sales fell 14.6 percent in April, the 10th consecutive month of decline.

China’s exports also unexpectedly shrank in April in the face of US tariffs and weaker global demand, while new factory orders from at home and abroad remained sluggish.

“There are still uncertainties haunting the performance of the economy. Tensions between China and the US have returned while concerns about insufficient demand worldwide are on the rise,” Mr Nie said.

Mr Nie said China may need a more comprehensive cut in banks’ reserve requirements in June before a G20 summit where Presidents Donald Trump and Xi Jinping are expected to discuss trade.

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