China's economy faces several headwinds, including weak consumer activity and a debilitating housing crisis (Jade GAO).
China's economy grew significantly more than expected in the first quarter of 2024, data showed on Tuesday. However, disappointing retail and industrial numbers suggested leaders face strong headwinds in meeting their annual growth target.
Beijing has set a target of around five percent for 2024. Officials have already admitted it will “not be easy” and what analysts are calling ambitious given the challenges facing the world's second-largest economy.
In the first three months of the year, gross domestic product rose 5.3 percent, compared with 5.2 percent in the previous quarter, the National Bureau of Statistics said.
The numbers significantly exceeded analysts' expectations, with figures compiled by Bloomberg forecasting 4.8 percent.
“The national economy continued the good momentum of recovery,” the NBS said, calling it a “good start.”
The GDP data remains an important insight into the health of the world's second-largest economy, even if it is hyper-political.
Tuesday's figures “far exceed market expectations,” Dan Wang, chief economist at Hang Seng Bank China, told AFP.
“Consumption and housing investment were the main drag, while manufacturing and infrastructure were the main drivers,” she said.
It reflects “the fundamental policy shift from a focus on the consumer market and services sector to…industrial growth.”
But problems in the real estate market remained a millstone for the economy as property prices continued to fall and top developers such as Country Garden and Vanke sent distress signals about their profits and difficulty paying down debt.
Data showed that these difficulties also led to a decline in property prices in China's major cities last month.
Fears of a return to deflation are also spreading.
Derek Scissors, senior fellow at the American Enterprise Institute (AEI), warned that “the good news ends” with the real GDP number being adjusted to take inflation into account.
The story goes on
“Deflation is evident in GDP and producer prices,” he said, adding that “the benchmark indicator of retail sales was slower at this point than last year.”
“There are two readings of the full numbers: China’s surprising real GDP growth is unsustainable, or China’s surprising real GDP growth is a fake.”
– Growth remains sluggish –
Some sectors, particularly services, are performing well as customers return to restaurants, travel internally and visit tourist attractions.
However, both retail sales – the main indicator of household spending – and industrial production fell last month, officials said.
Retail sales rose just 3.1 percent year-on-year, compared with 5.5 percent in the first two months of 2024, while industrial production rose 4.5 percent, compared with seven percent in January-February.
The unemployment rate fell to 5.2 percent in March from 5.3 in February.
However, this figure paints an incomplete picture as it only includes urban workers and virtually excludes millions of migrant workers from rural areas who are particularly vulnerable to the downturn and whose situation has been exacerbated by the housing crisis.
The latest figures follow last week's report showing a decline in exports and imports.
Ratings agency Fitch last week downgraded the country's sovereign debt outlook to negative and warned of “increasing risks to China's public finance outlook” as the country grapples with a “more uncertain economic outlook.”
Policymakers have announced a series of targeted measures as well as the issuance of billions of dollars in government bonds to boost infrastructure spending and boost consumption.
But analysts say much more needs to be done, in the form of a “bazooka” stimulus package.
Beijing stressed on Tuesday that government efforts to boost growth “are having an impact.”
And Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, said in a note that “strong growth in the first quarter will ensure the government is comfortable with the current policy stance.”
Growth is particularly affected by weakened household and business confidence amid this economic uncertainty, which is weighing on consumption.
“Weakness in consumer confidence and the real estate sector remained a challenge,” said Chaoping Zhu, global market strategist at JP Morgan Asset Management.
“More proactive policy support is needed to increase consumer expectations and demand,” he added.
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