The world’s second-largest economy dialed back a gear in April as authorities crack down on the nation’s swelling financial leverage.

Industrial output in China rose 6.5% last month from a year earlier, compared to 7% seen by economists and 7.6% in March.  Retail sales increased 10.7% versus 10.8% seen by analysts.   Fixed-asset investment excluding rural areas expanded 8.9% for the first four months, compared to a median estimate of 9.1%.

Big Picture

Growth momentum has softened after a strong first quarter as policy makers seize the window to curb shadow lending and leverage. While equity and credit markets have been shaken by the campaign, economic fundamentals remain robust as reflation boosts company profits and external demand gets a boost from a pick up in global growth.

Economist Takeaways

"All the data sends the same message: The economy slowed down meaningfully in April," said Larry Hu, head of China economics at Macquarie Securities Ltd. in Hong Kong. "But given that growth is still fine, in the second quarter policy makers will still focus on reducing financial risk."

"The impact of tightening on the real economy is manageable," Morgan Stanley economists led by Robin Xing wrote in a recent note. "Stronger exports and private capex in the manufacturing sector, both less credit-intensive, should help compensate for a drop in investment growth in credit-intensive housing investment or government-driven public investment due to policy tightening."

The Details

Private fixed-asset investment rose 6.9% in first four months, property development investment climbed 9.3%.

Ferrous and non-ferrous metal smelting and pressing dragged on industrial production.

By Bloomberg News