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China’s first-quarter gross domestic product data showed the economy is reeling from its worst year in decades as the country’s major cities are locked down to curb the coronavirus outbreak and global demand for exports has weakened.

But while the figures suggest China is on track to meet or exceed 5 percent growth for the year, expected to pick up pace in the second quarter, economists warn the recovery remains uneven and in its early stages.

According to the Bureau of National Statistics, despite the “good start” of the first quarter, domestic demand is “insufficient” and “the base of economic recovery is not yet strong.”

Five taken from Tuesday’s release

After a locked low, retail sales will return

The retail sector, which has been among the hardest hit by Beijing’s Covid-19 crackdown, has experienced one of the strongest hits.

Retail sales rose 10.6 percent in March, beating analysts’ forecasts of 7.5 percent and as the economy continues to recover from the nationwide Covid-19 outbreak in January and February.

However, part of the impressive growth in quarterly sales was a 5.8 percent increase, due to lower results from last year’s closing in Shanghai.

We expect activity data to improve further in April-May. [in year-on-year terms] At a record low last year when Shanghai lifted strict lockdowns,” Goldman Sachs analysts wrote in a note.

Growing exports should slow down

Exports expanded 14.8 percent in March, beating the market’s 5 percent decline. Most of this growth was due to sales of electric vehicles and exports to Russia.

But many economists expect a bleak outlook ahead as global demand for Chinese exports declines, rising prices in developed markets and the lingering effects of banking sector turmoil weigh on trade. “Growth is likely to slow further,” said Louise Lo at Capital Economics.

Economists have been debating whether Beijing should increase stimulus spending in pursuit of its 5 percent growth target for 2023.

Iris Pang, chief China economist at ING, said: “The challenge this year is a recovery year for China, but a coming recession for the US and a very slow growth year for Europe.” Beijing had predicted it would delay stimulus plans to boost demand and support jobs after an expected first quarter.

Fiscal stimulus is not immediately needed to support consumers. But since we expect the foreign market to deteriorate further in 2023, the government will maintain its infrastructure investment plan as an additional engine of growth, he said.

Property destruction continues.

The property sector, a key pillar of China’s economy, has been under pressure from a liquidity crisis that has hit the sector and created a series of defaults. Real estate investment fell 5.8 percent and home sales fell 1.8 percent in the first quarter, while new home starts continued to decline, falling 19.2 percent year over year.

But sales prices rose 4.1 percent in the first three months, and new home prices rose at the fastest pace in 21 months in March, indicating some improvement.

The gloom in the property sector also continued to spread in areas such as durable goods, including home appliances, sales of which fell 1.4 percent year-on-year in March.

The recovery in private sector business confidence may be slower than expected, JPMorgan Asset Management strategist Chaoping Zhu said in a note.

Public sector fixed asset investment led the way with 10 percent growth, but private sector investment grew just 0.6 percent in the quarter, “suggesting that business confidence still has a long way to go to fully recover,” he said.

Compact unemployment

One in five young Chinese remain unemployed, according to data released Tuesday, highlighting the challenges facing President Xi Jinping’s government.

China’s ruling Communist Party claims legitimacy in terms of its ability to improve the lives of the country’s 1.4 billion people, but structural stagnation in manufacturing has hindered it from boosting employment.

Raymond Yeung, chief economist for China at ANZ, said the youth unemployment rate, which had been at 19.6 percent, was the lowest in the economy, but had fallen to 5.3 percent.

“In June, there will be new graduates looking for jobs. If China’s economy slows down, unemployment could worsen, he said.

An achievable growth goal

After the first quarter headline report came in at 4.5 percent, economists were optimistic that the government would meet its full-year growth target of 5 percent by 2023.

“China’s economy has clearly shaken off the pain associated with Vivid and is moving in a positive direction,” wrote Cornell University’s Iswar Prasad. “In the current economic direction . . . This year’s growth target looks very achievable barring any major downside shocks.

However, the lack of sustained progress is partly due to Beijing’s avoidance of unexpected policy changes that have shaken business confidence over the past two years, including a crackdown on the private sector and a zero-covid policy.

Keu Jin, Professor at the London School of Economics and author The new Chinese playbookThis new economic planning group says it is trying to get rid of “Western-style” capitalism that dominates politics.

“Nowadays, finding the right words, finding the right balance is still a re-arrangement. . . He doesn’t want to go to either extreme,” she says. We need to see the same clarity and predictability of the policies even if the economy slows down.

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