China's April industrial production exceeded market expectations. Given that April is when the United States began imposing a high tariff of 145% on imports from China, there were dominant forecasts predicting a significant downturn in industrial activity; however, this was not realized.

A factory in Jiangxi Province, China. /Courtesy of Reuters.

China's National Bureau of Statistics reported on the 19th that April industrial production increased by 6.1% compared to the same month last year. This figure is a decrease of 1.6 percentage points from March's growth rate of 7.7%, but it surpassed the market expectation of 5.7% compiled by Bloomberg. Bloomberg noted, "Although the two countries agreed to a 90-day truce in the tariff war, uncertainty surrounding further negotiations may cause corporations to adopt a cautious stance on expanding production." Nevertheless, it explained that the performance of industrial production in April demonstrates that China is successfully navigating the risks of recession amidst the tariff war.

Other indicators besides industrial production showed a recovery but fell short of market expectations. April retail sales reached 3.7174 trillion yuan (approximately 721.1 trillion won), a 5.1% increase compared to the same period last year. This is a slowdown from March's growth rate (5.9%) and did not meet the market expectation of 5.5%. Cumulative fixed asset investment for January to April amounted to 14.7024 trillion yuan (approximately 2,852.4 trillion won), a 4.0% increase year-on-year, also slightly below the market expectation of 4.2%. According to an analysis by Reuters based on data from the National Bureau of Statistics, national new housing prices in April remained unchanged for two consecutive months. The urban unemployment rate dropped to 5.1%, down 0.1 percentage points from the previous month.

Markets anticipated that the impact of the United States' high tariffs would start to significantly affect the Chinese economy from April. The United States imposed an additional 10% tariff on China in both February and March. Subsequently, the reciprocal tariff rate imposed in April rose to 125%, resulting in a total additional tariff of 145% that Chinese imports entering the U.S. must bear. As the "world's factory," China is significantly affected by the export market environment, and China's National Bureau of Statistics has also expressed concerns regarding this.

The April figures released that day illustrate how desperately China needed a truce in the trade war. While industrial production exceeded market expectations, the 1.6 percentage point decline from the previous month's growth rate marked the largest drop since a 2.1 percentage point decrease in May 2023. If the trade war had continued, it might have been difficult to avoid a more significant plummet. This resilient performance raises the possibility of achieving China's official growth target of "around 5%" this year. Bloomberg stated that this shows the resilience of China, the world's second-largest economy, and is generating optimism about growth as tensions in the trade war with the United States rapidly ease.

However, it is still too early to be relieved. Consumption and investment are slowing, and the real estate sector remains in a slump. As a result, major investment banks have recently adjusted their forecasts for China's economic growth rate upwards, while still projecting levels lower than China's official target of "around 5%." Goldman Sachs raised its forecast from 4.0% to 4.6%, and Morgan Stanley proposed a new estimate of 4.8%. Consequently, while the intensity of the stimulus measures may decrease, the need for such measures remains.