China: Questioning slower retail sales growth

Retail sales surprised us on the downside, growing by only 17.7%YoY in April when the consensus estimate was for growth of 25%.

Looking at this by item, the slowdown was moderate in almost every item, except for a faster slowdown in cosmetics, jewellery, and home appliances.

We believe that this reflects postponed consumption to save for discounts in the Golden Week holiday in May, during which sellers offer more discounts on online shopping platforms. So, this could be a temporary slowdown, and if so, we should see a moderate rebound in May.

Fixed asset investment grew 19.9%YoY YTD in April from 25.6%YoY in the prior month mainly due to

1. Slower growth in property development of 21.6%YoY YTD in April from 25.6%YoY YTD in March, which is a consequence of deleveraging reform;
2. 3.0%YoY YTD investment contraction in the automobile sector, which could be a result of disruption in semiconductor chip supply, with automobile producers predicting slower sales in the future and therefore reviewing further investment.

In contrast, the technology-related sector grew 30.8%YoY YTD, which shows that the government continues to focus on technology self-reliance.

Industrial production increased 9.8%YoY in April from 14.1%YoY in March. There are three eye-catching points:

1. Anti-pollution policies could have affected the mining of coal, which fell by -1.8%YoY after -0.2%YoY in March. This is just the start, we should see this become a trend as China needs to achieve its net-zero carbon emissions by 2060.
2. Production of passenger cars contracted 3.5%YoY in April from a growth of 64.8%YoY in March. This could be a result of chip shortages.
3. Integrated circuits production rose 29.4%YoY in April after 37.4%YoY a month ago. Discounting the base effect, this is still a fast growth rate. We expect that some Taiwanese semiconductor companies have increased production in Mainland China.