China Center Data Flash: A Return to the Normal -- the economy cools in April

Data Flash is a brief interpretive summary of China’s official monthly economic data release. 

New loan growth dropped 22 percent in April compared to one year ago. While this does not indicate an abandonment of a loose monetary policy, this decline, along with the “Authoritative Person” comments in early May, revealed that the credit explosion from the beginning of the year was unlikely to continue, and China had not yet resorted to a comprehensive easing. If credit growth continues slipping from the spike in Q1, asset prices -- including housing market prices -- are also likely to settle down in the second half of the year.

Growth in industrial production and in industrial total profit both fell in April, suggesting that the bounce in Q1 was unsustainable. Weakening demand and widespread overcapacity will continue to drag down growth in industrial production, especially in the capital-driven segments.

The lack of vitality in private sector investment left growth to depend on the state-owned economy, which was most noticeable in fixed asset investment (FAI) growth and in the services sector. Such a growth pattern should raise concerns as to growth sustainability as well as the efficiency of resource allocation.