China’s economic momentum broadly held up in April with industrial production exceeding forecasts, though slowing investment signaled a moderation in the coming months.

  • Industrial output rose 7 percent in April from a year earlier, versus a projected 6.4 percent in a Bloomberg survey and 6 percent in March
  • Retail sales expanded 9.4 percent from a year earlier, versus a forecast 10 percent
  • Fixed-asset investment rose 7 percent year-on-year in the first four months, compared with an estimated 7.4 percent
  • The new surveyed jobless rate stood at 4.9 percent

The reports are among the first official readings unaffected by the Lunar New Year holiday, which skewed year-on-year comparisons for the first three months. The mixed data confirm a picture of an economy already in a gradual cyclical slowdown, at a time when it is facing risks from trade tensions with the U.S. to an ongoing campaign to curb excessive debt.

“Regulatory tightening in China’s financial system is starting to drag on growth,” said Frederic Neumann, co-head of Asian economics research at HSBC Holdings Plc in Hong Kong. “Fixed-asset investment, especially infrastructure, may slow further in the coming months as tighter financial regulations, especially regarding shadow banking, are starting to bite.”

A key indicator of performance in the rest of the year lies in the real estate sector. Property development investment in the first four months expanded 10.3 percent from the same period a year earlier.

Though rhetoric around the trade dispute with the U.S. remains heightened, there are few concrete signs of a direct impact on exports or confidence yet.

Vice Premier Liu He, who is President Xi Jinping’s top aide for economic matters, will travel Tuesday to the U.S. for trade talks with Treasury Secretary Steven Mnuchin, the Ministry of Foreign Affairs said Monday in Beijing, a potential avenue for further easing of tensions.

Instead, economists point primarily to domestic factors as behind the investment slowdown, such as the government’s effort to tighten rules around public-private joint investment.

“Total demand is showing signs of weakening, which is closely related to the ongoing deleveraging and also the tightening of PPP projects,” said Liu Xuezhi, an analyst at Bank of Communications Co. in Shanghai. “The external shocks aren’t as big as expected, and the economy in general is still stabilizing despite the slight slowdown.”

— With assistance by Xiaoqing Pi, Malcolm Scott, Kevin Hamlin, Yinan Zhao, and Miao Han

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