(Bloomberg) – China’s economy rebounded in the first two months of the year following the end of Covid restrictions, although the recovery remains unbalanced as industrial production lagged.
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Retail sales rose 3.5% from the same period last year, the National Bureau of Statistics said on Wednesday, in line with forecasts and reversing from a 1.8% decline in December.
Industrial production rose at a slower-than-expected 2.4%, while the unemployment rate rose after the Lunar New Year holiday.
“This probably reinforces the view that even if we have a sequential upswing in China’s recovery after reopening, it won’t be a big boom,” Johanna Chua, chief economist for Asia-Pacific at Citigroup Global Markets, said in an interview on Bloomberg TV.
China abruptly dropped its Covid-zero strategy in December, leading to a spike in infections through January. However, cases peaked earlier than expected, prompting people to start traveling and spending again and giving a boost to the service sector. The factories also benefited from the end of the logistics bottlenecks and restrictions, but production was also affected by the long holidays and the wave of infections.
The NBS said activity has “stabilized and recovered” in the first two months, although the global environment remains uncertain and demand in the economy is still insufficient.
The Bureau normally combines data releases for the two months of January and February to avoid distortion caused by the Lunar New Year holidays, which may fall in either month depending on the year.
Chinese stocks held on to their strong opening gains after the data as equity markets in the region recovered from recent losses sparked by concerns over the health of the US banking system.
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The CSI 300 stock index was up 0.6% as of 10:55 local time, while futures contracts on 10-year bonds were down 0.1%. The yuan has hardly changed.
A breakdown of retail sales data shows that sales of Chinese and Western medicines rose the fastest, up 19.3% over the two months. Sales of petroleum and its products increased by 10.9% and catering increased by 9.2%.
What Bloomberg Economics Says…
China’s first comprehensive set of “hard” data for the first two months of the year shows the recovery is well underway – but not as striking as early survey data suggest. Retail sales returned to growth and industrial production accelerated. But the biggest driver has been infrastructure spending — increasing the risk that the growth spurt is overly dependent on government support.
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Chang Shu and David Qu
Investments picked up as local governments ramped up sales of special bonds to more than 800 billion yuan ($116 billion) in the first two months of the year to frontload infrastructure spending. The issuance accounts for over one-fifth of this year’s total of 3.8 trillion yuan for such debt.
The rebound will be encouraging news for the top leadership, which has made economic growth a top priority this year. Beijing has set a modest target for gross domestic product growth of about 5% this year and has signaled that it will avoid big stimulus from infrastructure investment or the real estate market. However, a fairly ambitious job creation target of “around 12 million” suggests that policy will remain supportive.
Earlier on Wednesday, the central bank increased net cash injections into the financial system by the highest level since December 2020, providing banks with additional liquidity as demand for credit strengthens.
China’s new Premier Li Qiang said Monday the growth target is “no easy task” and “requires double efforts”. The nation will prioritize stability in growth, prices and jobs while trying to make progress on quality development, he said.
According to economists polled by Bloomberg, the economy is expected to grow 5.3% this year. However, a number of risks cloud the outlook, including slowing global demand, a struggling housing market and rising geopolitical tensions.
Wednesday’s data points to “steady rather than accelerating momentum,” said Zhou Hao, chief economist at Guotai Junan International Holdings. “It needs strong political support to unleash the growth potential.”
–With the support of Yujing Liu and Jing Zhao.
(Updates with analyst comments.)
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