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Are China’s stimulus programs doing their job in stimulating growth?

Let’s take a look at the leading indicators of the world’s second-largest economy!


  • Q1 2016 growth is the weakest on record while Q4 2016’s growth is revised lower from 1.6% to 1.5%.
  • On an annualized basis, the 6.7% growth is the weakest since Q1 2009 but is still in line with the government’s 6.5% to 7.0% target.
  • Still, fixed-asset investment, industrial output, retail sales, and new credit all increased in March, suggesting the economy is accelerating.
  • Government stimulus and spending have stabilized and propped up the economy…but for how long?


  • China’s urban unemployment rate slipped from 4.05% to 4.04% in April.
  • Official reports say that an additional 3.18M jobs were created in Q1 2016.
  • The government aims to create 10M urban jobs and keep the urban unemployment rate to 4.5% in 2016.
  • Due to China’s weak unemployment programs, many analysts are questioning the government’s numbers.
  • The improving employment numbers in the face of slowing growth suggests that labor productivity is suffering. The government is faced with the choice of extending its stimulus programs to prop up short-term jobs or using its funds to facilitate structural changes.


  • Like in March, April’s consumer prices grew by 2.3% compared to the previous year.
  • Details show that the increase in pork and vegetable prices was offset by the drop in fruit and egg prices.
  • The government is targeting a 3.0% inflation rate for 2016.
  • The underperformance of consumer prices gives the People’s Bank of China (PBoC) room to pump more money into the economy.


  • Reading the PMI reports: A reading above 50.0 indicates industry expansion while sub-50.0 results hint at contraction in the industry.
  • The Caixin releases are favored by more analysts as they survey more private companies rather than official readings which tend to survey more state firms.
  • The Caixin manufacturing PMI fell from 49.7 to 49.4, its 14th month below the 50.0 mark.
  • Private investment in fixed assets decelerated to 10.5% in the year to April from a year earlier, its slowest since 2012.
  • The weak readings reflect the decline in new orders, selling prices and overall client demand while input costs and business expectations have increased. Not a good balance for both the manufacturing and non-manufacturing industries.
  • April’s weak numbers negate March’s strong readings and suggest that the economy has yet to get over its latest bump.


  • Retail sales slowed down to 10.1% in April, down from March’s 10.5% growth from a year earlier. Analysts had expected an 11.0% increase.
  • A closer look tells us that the slowdown in automobile sales (down to 5.1% from 12.3%) contributed to the weaker-than-expected figures.
  • Consumer confidence recovered to 101 after falling to its lowest since 2014 in March.
  • Market players are looking closely at consumer spending to gauge the government’s success in transitioning from investment-led growth to a consumer-driven economy.

TL;DR? Here’s a neat chart that summarizes the figures for ya!


Putting it all together

There’s no doubt that China’s efforts at the start of the year helped calm down the markets and restore confidence in the government’s ability to stimulate growth.

The stimulus injections, credit expansions, front-loading of infrastructure budgets, and easing of property sales rules provided a much-needed boost for both the businesses and the consumers in Q1 2016.

With April’s numbers coming in weak though, market players are questioning the sustainability of the government’s solutions beyond the first quarter. Problems such as overcapacity and a housing glut, for example, are beginning to affect businesses and property prices.

Right now the government is faced with a choice. Should it continue pumping money into the economy and address the grave but short-term problems? Or should it let the short-term indicators suffer in favor of structural and longer-term changes?