China’s economy continues slow recovery
China maintained its economic recovery in April, according to the latest economic indicators published by the country’s National Bureau of Statistics.
China’s value-added industrial output, an important economic indicator on the supply side, went up 5.6% year-on-year in April, expanding by 1.7 percentage points from the level in March, according to the NBS.
Sales of consumer goods – a major indicator of consumption – grew by 18.4% year-on-year during the same period, showing a sustained increase in consumer demand, the data revealed.
China’s service production index also grew, up 13.5% year-on-year in April – 4.3 percentage points faster than that of the previous month.
The consumer price index, a main gauge of inflation, was slightly up at 0.1% year on year in April. On a monthly basis, the prices were slightly down, by 0.1%. The NBS said that the core CPI, deducting food and energy prices, was up by 0.7% from a year earlier.
There was also a slight decrease in April in China’s urban unemployment rate, which stood at 5.2% in April, down 0.1 percentage points from the previous month.
However, despite the growth rate, NBS spokesperson Fu Linghui warned that due to the “complex and severe international landscape… the internal driving force for economic growth remains modest”.
Bank rate cuts expected to bolster economy
The Chinese economy could receive a further boost following the decision by a number of commercial banks to cut deposit interest rate, which is expected to boost banks’ lending capacity and generate economic growth.
Industry experts said that, over the past month, several key commercial banks had lowered their deposit rates. Earlier this month, several mid-sized commercial banks, including China Zheshang Bank Co, Hengfeng Bank Co and China Bohai Bank Co, lowered their deposit rates on by 10 to 30 basis points.
After the adjustment, China Zheshang Bank Co will pay 2.9% on three-year deposits and 2.95% on five-year deposits, down from 3% and 3.25% respectively.
This week China’s central bank, the People’s Bank of China (PBOC), kept the headline interest rate unchanged at 2.75%, why also reassuring businesses that China’s economy is not experiencing deflation.
In a statement the PBOC said that price rises are still moderate, with the core consumer price index rising 0.7% year-on-year (in both March and April). “The economy is ever improving and does not fit the definition of deflation… the economy does not exhibit conditions that indicate long-term inflation or deflation”, the bank said.
Zhou Maohua, an analyst at China Everbright Bank, said deposit rate cuts appear to show the banks’ intention to maintain profitability, as they had been facing squeezed profit margins in recent years.
“On the one hand, with China constantly deepening its market-oriented interest rate reform, banks now have more mandates to manage their costs. On the other hand, with household savings up sharply and many savings turning into time deposits, banks’ cost of liabilities has increased,” Zhou said.
He said that, because of the Covid-19 pandemic, over the past three years consumers had chosen to save money, leading to a sharp increase in deposits.
Household savings grew by 9.9 trillion yuan ($1.42 trillion) in the first quarter of 2023, after a record growth to 17.8 trillion yuan in 2022, according to PBOC data. Net interest margins, a key measure of banks’ profitability, hit a record low of just 1.91% at the end of 2022, the first time since 2010 that figure dropped below 2%, according to data released by the China Banking and Insurance Regulatory Commission in April.
In April, some smaller banks in China cut their time deposit interest rates, following a similar move by the country’s larger banks last year.
Gao Ruidong, chief macroeconomist at Everbright Securities, said that while banks are adjusting their deposit rates to battle falling profit margins, the cuts will help divert more cash from the savings pool into the real economy.
“With an overall downtrend in deposits, net margin pressures in the financial system will ease, creating more space for banks to facilitate the real economy.
“Easing net interest margin also generates greater possibilities for lower lending rates. We expect further cuts to lending rates if there is more fresh momentum in the ongoing economic recovery,” Gao said.
