Chinese data point to economic slowdown in April, PBoC issues statement

A spate of weaker-than-expected figures on Chinese economic activity referencing the month of April triggered cautious market commentary and saw the country's central bank issue a statement clarifying its position on policy and the reasons behind weak lending data released in the previous session.

The rate of growth for industrial production slowed from 6.8% year-on-year clip in March to a 6% year-on-year pace in April, according to the National Bureau of Statistics.

That was less than the 6.5% rise which economists had forecast.

Retail sales expanded by 10.1%, undershooting expectations for a gain of 10.5%, while fixed asset investment was up by 10.5% over the year to April, missing economists projections for growth of 11%.

"Monetary policy will continue to be conducted in a prudent manner"

Growth in fixed asset investment was the slowest since 2012 at the least.

"Due to weak market demand, companies’ reluctance to invest and market entrance barriers, China’s private fixed-asset investment has been decelerating since the start of this year," NBS said in a statement.

"This will hurt the steady growth of investment and it deserves a lot of attention."

Lending figures distorted by shift in government borrowings, but ...

Together with weaker than expected figures on new bank lending for April and for so-called total social financing - up until recently the widest measure of economy-wide changes in credit conditions - released on the previous day, most market commentary took a very cautious line when it came to interpreting both sets of data and what it said about the underlying strength of a recent stabilisation in the economy.

However, on 13 May Julian Evans-Pritchard at Capital Economics cautioned the TSF figures were distorted by an official programme of swapping some government debt for cheaper instruments.

Indeed, government borrowing surged in April and a measure of TSF adjusted to take that into account reached a 26-month high in April, Evans-Pritchard explained in a research note sent to clients on the same day.

China's Ministry of Finance new requirement that all of the investment funds budgeted for the year be released by the end of the second quarter meant credit growth was likely to accelerate further and, given the typical six month lag between credit and economic activity, help sustain the current cyclical upturn until the end of 2016, "but not much longer", he said.

PBoC issues statement

On Saturday, the People's Bank of China confirmed that had indeed been the reason why new yuan lending had undershot economists' expectations by such a wide margin, rising by 555.6bn yuan (consensus: 800bn yuan).

PBOC said monetary policy would continue to be conducted in a prudent manner so as to create an appropriate financial and monetary environment to facilitate steady economic growth.

Slower industrial output could be accounted for by weak foreign demand, a large fall in mining and over-capacity in steel and coal, NBS said.

A pull-back in sales of automobiles to a 5.1% rate of increase following March's gain of 12.3% was the main drag on retail sales during the month.

Investment in housing was the one bright spot in the data, showing that it kept pace with a rise in March.

To take note of, according to Reuters on Saturday China's banking regulator also sent an urgent notice to lenders telling them to "clear bottlenecks holding back lending to private firms".