Daily Management Review

China's Economy Is Growing, But There Are Difficulties To The Outlook Due To Global Factors


China's Economy Is Growing, But There Are Difficulties To The Outlook Due To Global Factors
While headwinds from a global slowdown suggest a difficult road ahead, China's economy expanded faster than anticipated in the first quarter as firms and consumers were freed from crippling pandemic interruptions by the lifting of strict COVID limits.
The world's economic development has been hampered by more than a year's worth of sweeping global monetary policy tightening to contain hot inflation, leaving many nations, especially China, dependent on domestic demand to maintain pace and making it more difficult for policymakers to achieve post-COVID stability.
Data from the National Bureau of Statistics (NBS) on Tuesday showed that the gross domestic product increased 4.5% year over year in the first three months of the year, which was a quicker rate than the 2.9% in the previous quarter.
It represented the greatest rise in a year and above analyst expectations for a 4.0% expansion.
After Beijing abruptly suspended COVID controls in December and relaxed a three-year crackdown on internet businesses and real estate, investors have been keenly monitoring first quarter data to gauge the extent of the recovery. Due to COVID limits, GDP growth last year fell to one of its lowest levels in almost fifty years.
"Economic recovery is well on track. The bright spot is consumption, which is strengthening as household confidence improves," said Zhiwei Zhang, chief economist at Pinpoint Asset Management. "The strong export growth in March also likely helped to boost GDP growth in Q1."
To reduce unemployment, Chinese policymakers have promised to provide support for the $18 trillion economy. However, they have little room for maneuver as enterprises struggle with debt problems, structural issues, and concerns about a global recession.
China's recovery has so far been patchy as it struggles to transition from investment-fueled growth to one that is largely dependent on consumption.
Because of the poor global growth, spending on consumption, services, and infrastructure has increased, but factory output has lagged. Doubts about demand are also being raised by falling prices and rising bank deposits.
Unexpectedly, China's exports increased in March. However, economists have cautioned that this increase may be the result of suppliers filling orders that were left unfilled following the COVID-19 interruptions.
Although the economy is off to a good start, NBS spokesman Fu Linghui said at a news conference that "the international environment is still complex and ever-changing, constraints from insufficient domestic demand are obvious, and the foundation for economic recovery is not solid."
The low base effect from a year ago could cause China's second-quarter growth to increase significantly, according to Fu.
On a quarterly basis, GDP increased by 2.2% in January–March, exceeding analyst estimates and up from the previously reported 0.6% increase.
After the report, Asian markets partially recovered their losses, but the fundamental issues with China's economy restrained the upward trend. The blue-chip CSI300 Index in China increased barely 0.1%.
China's growth is predicted by analysts surveyed by Reuters to accelerate to 5.4% in 2023 from 3.0% in 2018.
After miserably failing to achieve its 2022 aim, the administration has set a modest target for economic growth of roughly 5% for this year.
Separate information on March activity was released on Tuesday, showing that retail sales growth accelerated to 10.6%, above forecasts and reaching close to two-year highs. However, that was driven by a low-base effect, and consumer caution is showing.
Growth in factory output also accelerated, but it fell barely short of expectations.
"Riding on this trend, we expect GDP in the second quarter to reach around 8%, and it won't be a big problem for China to achieve its growth target for the year," said Tao Chuan, chief macro analyst at Soochow Securities in Beijing.
"That said, we see some structural problems remain in unemployment rate, property investment and confidence in private sector. These problems need to be solved to support a sustained recovery."
China's unemployment rate as measured by a national poll decreased from 5.6% in February to 5.3% in March, but the rate for people aged 16 to 24 increased from 18.1% to 19.6% last month.
In China, infrastructure spending increased 8.8% between January and March of last year, exceeding a 5.1 increase in total fixed asset spending, while real estate spending decreased 5.8%.
The country's central bank, which reduced the reserve requirement ratio for lenders in March, declared this week that it would keep enough of liquidity and stabilize growth and employment.
In an indication that Beijing is not particularly concerned about the near-term growth outlook, the central bank provided liquidity support to banks on Monday through its medium-term lending facility while maintaining the rate on such loans at its previous level.
The government still significantly relies on infrastructure spending to encourage investment and economic growth because it has refrained from taking significant action to boost consumption.
"In short, with this GDP report, we believe there is no immediate need for the government to put massive stimulus into the economy," Iris Pang, chief Greater China economist at ING, said in a note.($1 = 6.8761 Chinese yuan)