April 4, 2018 / 10:42 AM / 16 days ago

China's March data set to show gradual cooling in economy as trade war risks grow

BEIJING (Reuters) - A raft of Chinese data over coming weeks is expected to show the world’s second-biggest economy cooled slightly in March from the first two months of the year, with the main risk to the outlook now centered on an escalating Sino-U.S. trade spat.

A worker polishes steel pipes at a factory of Dongbei Special Steel Group Co Ltd in Dalian, Liaoning province, China March 27, 2018. REUTERS/Stringer

Beijing on Wednesday slapped additional tariffs on a range of U.S. goods in a swift retaliatory action, after Washington had raised the stakes in the growing trade showdown by proposing extra 25 percent tariffs on some 1,300 industrial technology, transport and other Chinese products.

Analysts fear a full-blown U.S.-China trade spat could have damaging economic consequences, hitting exporters of both nations and shattering global growth.

Economists are penciling China’s growth to slow 6.5 percent this year, from a solid 6.9 percent in 2017, due to a cooling property market and rising borrowing costs.

Export growth is expected to have weakened to 10 percent last month from February’s 44.5 percent, according to a Reuters poll of 31 economists, while China’s import engine may have revved up in a sign of improved domestic demand.

Analysts attributed the expected pullback in March exports to a seasonal downward adjustment after January-February numbers blew past expectations as firms stepped up shipments before the Lunar New Year holiday in mid-February.

A strong yuan could have also weighed on exports. The Chinese yuan CNY=CFXS gained around 3.7 percent against the U.S. dollar .DXY in the first quarter this year.

Still, there is potential for March exports to surprise on the upside.

“Overall, foreign demand remained strong in the first quarter,” said Lu Zhengwei, chief economist at Industrial Bank. “With a possible trade war with the U.S. looming, Chinese exporters may front load their overseas shipments before the U.S. tariffs kick in.”

Industrial output growth is likely to have slowed to 6.2 percent in March, even though Chinese authorities lifted winter pollution restrictions in March. As well, growth in fixed-asset investment likely eased to 7.6 percent last month.

However, domestic consumption is expected to remain solid, partly offsetting some of the drag from manufacturing. Retail sales are seen stepping up a touch with a 9.9 percent rise in March.

Broad inflation reading are expected slow and back views of broader slackening in economic growth.

Bank lending may have risen to 1.2 trillion yuan ($190.56 billion) in March, after slumping in February, probably hit by a regulatory clampdown on riskier financial activity that has fueled a rapid build-up in debt. Banks extended a record 13.53 trillion yuan in new loans last year.

Foreign exchange reserves, meanwhile, likely rose last month as a stronger yuan and tight regulations discouraged capital outflows, after falling for the first time in 13 months in February.

Reporting by Stella Qiu; Polling by Shaloo Shrivastava in BENGALURU and Wang Jing in Shanghai; Editing by Shri Navaratnam

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