China's economic recovery gained a firmer foothold in April, but rising commodity prices are beginning to erode growth and require targeted policy support, officials and experts said on May 17.
Industrial production remained buoyant in April while fixed-asset investment recovered at a faster speed. However, growth in retail sales softened last month, the National Bureau of Statistics said.
Fu Linghui, a spokesman for the bureau, said China's economy was on firmer footing in April and is well positioned for continued recovery into the second half of the year.
The economic rebound will be supported by the combination of: stabilized employment that boosts consumption; recovering market demand that underpins corporate investment; policy support such as structural tax cuts; and the global economic rebound, he said.
China's industrial output rose by 9.8 percent year-on-year in April, down from 14.1 percent in March. This was due to the year-on-year comparison for March appearing greater as fewer factories were open 12 months earlier because of COVID-19.
On a two-year average basis, which corrects the distortion, industrial output grew by 6.8 percent in April, which was 0.6 percentage points higher than March. The growth was led by high-tech products such as new energy vehicles and industrial robots, the bureau said.
The growth in fixed-asset investment accelerated to 3.9 percent in the January-April period on a two-year average basis, compared with 2.9 percent in the January-March period, as investment recovered in the manufacturing sector and accelerated in property development.
Lu Ting, Nomura's chief China economist, said he expects the country's quarter-on-quarter economic growth to accelerate to 2 percent in the April-June period compared with 0.6 percent in the first quarter, amid faster retail sales and the delayed impact of infrastructure stimulus rolled out last year.
However, Fu said the foundation of recovery is "not yet solid". The COVID-19 pandemic has worsened in some economies and may cloud the global recovery, while rising international commodities prices have heightened the cost pressure on downstream enterprises.
"We should pay heed to the rising pressure facing downstream sectors and take effective measures to strengthen adjustments of the raw material market," he said.
China's producer price index, which gauges factory-gate prices, rose by 6.8 percent year-on-year in April, the highest level in over three years. The rising cost of raw materials has placed pressure on the economic recovery, experts said.
Retail sales grew by 4.3 percent on the two-year average basis last month, down from 6.3 percent in March. Despite improvements in April, fixed-asset investment in the manufacturing sector has not yet reached pre-pandemic levels for the same period of 2019, the NBS said.
Li Qilin, chief economist at Shanghai-listed Hongta Securities, said rising raw material costs may squeeze the profit margins of downstream manufacturers, which may in turn weigh on employees' salaries and consumer spending.
Wen Bin, chief researcher at China Minsheng Bank, said stronger structural policies are needed to help businesses suffering from greater cost pressure, as well as to boost consumers' willingness to spend by further stabilizing employment.
