China’s economic performance exceeded expectations in the first quarter of this year, propelled by supportive policies and increased demand, although challenges in the housing market persisted.
The second-largest global economy expanded by 5.3% annually from January to March, surpassing analysts’ projections of approximately 4.8%, as indicated by data released on Tuesday. Quarter-on-quarter growth stood at 1.6%.
Despite grappling with the aftermath of the COVID-19 pandemic, China regained momentum in late 2023, aided by government interventions aimed at stabilizing the housing sector and stimulating investment.
However, this positive data contrasts with recent reports of a 7.5% decline in exports and weakening imports in March compared to the previous year.
Moreover, inflation has cooled, underscoring deflationary pressures stemming from subdued demand amid housing market concerns. Investment in property development fell by 9.5% year-on-year in the first quarter, a slight deterioration from the 9% decline in the preceding quarter.
Sheng Laiyun, deputy commissioner of the National Bureau of Statistics, acknowledged the less optimistic outlook for real estate investment and sales, citing ongoing adjustments within the sector.
Although growth exceeded expectations, Sheng highlighted its uneven nature. Infrastructure investment, including in roads and bridges, rose by 6.5% year-on-year, slightly outpacing the 6% increase in the previous quarter.
Fixed investment in factories and equipment grew by 4.5% compared to the same period last year, up from 4.2% in the preceding quarter.
China’s leadership has been steering the economy towards a more balanced growth model, emphasizing greater reliance on consumer demand over investment spending, akin to other major economies.
While retail sales increased by 4.7% in the first quarter, March witnessed a slowdown, with growth at 3.1% year-on-year. Sheng noted disparities in the economic recovery, particularly between small and medium-sized enterprises and larger corporations.
Industrial output expanded by 6.1% year-on-year in the first quarter, albeit with a slower growth rate of 4.5% in March.
According to China economist Louise Loo of Oxford Economics, the robust growth in January-March was driven by strong performance in manufacturing, increased household spending during the Lunar New Year festivities, and supportive policies stimulating investments.
However, March indicators suggest a post-holiday slowdown, compounded by uncertainties in external demand, especially evident in export performance.
Loo cautioned that factors such as inventory adjustments, normalized household spending post-holidays, and a cautious approach to government spending could impact growth in the current quarter.
To bolster the economy, policymakers have introduced various fiscal and monetary measures.
China has set an ambitious GDP growth target of approximately 5% for 2024. While such growth typically boosts regional stock markets, Asian shares experienced a sharp decline on Tuesday, following Wall Street’s retreat.
The Shanghai Composite index fell by 1.47%, the Hang Seng in Hong Kong by 2.1%, and the benchmark for Shenzhen’s smaller market by 3.8%.
Despite being positive for neighboring economies reliant on Chinese demand, strong growth figures may signal a restraint on further stimulus measures by the government.
