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CNN
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China's economy grew faster than expected earlier this year, largely thanks to robust growth in high-tech manufacturing.
gross domestic product (GDP) grew 5.3% year-on-year in the first quarter, the National Bureau of Statistics said on Tuesday. That beat the estimate of 4.6% growth in a Reuters poll of economists. It also marked an acceleration from the 5.2% growth in the previous three months.
“The Chinese economy got off to a good start in the first quarter… laying a good foundation for achieving full-year targets,” Sheng Laiyun, an NBS spokesman, said at a news conference in Beijing accompanying the data release.
However, he acknowledged that “the foundation for economic stability and improvement is not yet solid.”
Industrial production rose 6.1% year-on-year in the first quarter, driven by strong growth in high-tech manufacturing.
In particular, the production of 3D printing devices, charging stations for electric vehicles (EVs) and electronic components increased by around 40% compared to the previous year.
Last month, an official survey showed China's manufacturing purchasing managers' index (PMI) rose for the first time in six months. The Caixin/S&P manufacturing PMI, a privately conducted survey, also hit its highest in more than a year as overseas demand picked up.
China has set an annual growth target of around 5% for 2024, which many analysts viewed as ambitious as consumer and business confidence remains weak and the real estate sector is in a prolonged downturn.
Authorities have cut interest rates this year to boost bank lending and accelerate central government spending to support infrastructure investment.
“The economy appears to be within reach of meeting the official target of GDP growth of 'around 5%' in 2024,” Frederic Neumann, chief Asia economist at HSBC, told CNN.
Tuesday's data showed retail sales rose 4.7% in the January-March period, driven by spending on sports and entertainment activities, cigarettes and alcohol, and catering services.
Investment in fixed assets – such as factories, roads and power grids – rose 4.5% over the same period.
But there are still many concerns.
“There is a growing disparity in China’s economy; Manufacturers are doing the heavy lifting while households wait,” said Harry Murphy Cruise, an economist at Moody’s Analytics.
Much of the good news in manufacturing is coming from China's “new three” industries: electric vehicles, solar panels and batteries.
“Officials have spent heavily to support these strategic industries and are reaping the rewards as production picks up and exports – particularly electric vehicles – surge amid an overall decline in global demand,” Cruise said.
But the strategy is not without risks.
Concern is growing in the United States and the European Union that China's excess capacity in these areas is flooding global markets and hampering their domestic industries.
Comments from US Treasury Secretary Janet Yellen on her visit to China last week underscore America's willingness to intervene with tariffs if it deems necessary.
“If that were to happen, the positive development of China’s manufacturing sector would be dampened,” Cruise said.
Property and consumption problems
The real estate market is also a major stress factor.
Real estate investment fell 9.5% in the first quarter compared to a year ago, according to NBS data. New home sales fell 27.6% over the same period.
Regardless, prices for new build properties in 70 cities fell by 2% in March compared to the previous year The decline was faster than February's 1.3% decline, according to Goldman Sachs' calculation based on the NBS's latest data release.
“The problems in the real estate market continue,” Cruise said.
The competitive real estate market is weighing on consumer spending, with 70% of China's household wealth tied to real estate.
Weak employment prospects and economic uncertainty are also slowing private household spending.
In March, retail sales growth slowed to 3.1% from 5.5% in February.
According to the NBS data, household confidence in employment and income is near “historic lows” which have been dragging down Retail sales fell in March because demand fell during the Lunar New Year holiday that took place weeks earlier, said Chaoping Zhu, global market strategist at JP Morgan Asset Management based in Shanghai.
Confidence among foreign investors in the world's second-largest economy, which contributed to growth during China's boom period, also remains weak.
The increase in investment in the first quarter came mainly from state-owned companies, which spent 7.8% more than a year ago. Private sector investment increased by just 0.5%.
Investment by foreign companies in the country fell by 10.4% in the first three months.
Beijing has made reviving economic growth its top priority for this year and renewed efforts to attract foreign investors.
On Tuesday, Chinese leader Xi Jinping met visiting German Chancellor Olaf Scholz in Beijing and called on the two countries to boost trade and deepen cooperation in engineering, cars and artificial intelligence, as complaints from the EU over the distribution of Chinese products is increasing.
A day earlier, Scholz said, according to Reuters, that Germany welcomed the import of Chinese cars but warned against dumping, overproduction and intellectual property violations.
Last month, Xi met with more than a dozen U.S. CEOs and academics in Beijing and urged them to “continue investing in China.” He expressed confidence that the country would maintain healthy and sustainable growth in the coming months.
China's economy grew by 5.2% in 2023. Although this expansion represented a significant acceleration compared to 2022, when it grew just 3% amid intense coronavirus lockdowns and disruptions, it was still one of the country's worst economic performances in over three decades.
Foreign direct investment in China has collapsed in recent months as a combination of slower growth, tough regulatory measures, strict national security laws and questions about the country's long-term prospects have shaken confidence in the world's second-largest economy.
“The strong growth figure in the first quarter contributes significantly to achieving China's annual target of around 5%. “However, the medium-term growth prospects depend on an expansion of the economy’s growth drivers,” Cruise said.
“If officials fail to persuade households to ease austerity measures, the economy risks having too many eggs in one basket.”
This story has been updated with additional information.