Hong Kong
UJ
—
China’s economy began 2023 on a positive note, as consumers engaged in increased spending following the conclusion of three years of strict pandemic measures.
According to the National Bureau of Statistics, the gross domestic product (GDP) rose by 4.5% in the first quarter compared to the same period last year, surpassing the 4% growth forecast from a Reuters survey of economists.
However, private investment remained stagnant, and youth unemployment soared to its second-highest recorded level, indicating that private-sector employers in the nation are still hesitant about future prospects.
Consumption experienced the most significant rebound, with retail sales rising 10.6% in March compared to a year prior, marking the highest growth rate since June 2021. From January to March, retail sales grew by 5.8%, primarily driven by increased revenue in the catering service sector.
“The combination of an ongoing rise in consumer confidence and the enduring release of pent-up demand indicates that the consumer-driven recovery has further potential,” remarked Louise Loo, China’s lead economist at Oxford Economics.
Industrial production also exhibited continuous growth, increasing by 3.9% in March, up from 2.4% in the January-to-February period (China typically merges its economic data for January and February to account for the effects of the Lunar New Year holiday).
Last year, GDP increased by only 3%, falling short of the official growth target of “around 5.5%,” as Beijing’s strict measures against the coronavirus disrupted supply chains and negatively impacted consumer spending.
Following widespread protests and a depletion of funds among local governments to manage COVID-related expenses, authorities finally abandoned the zero-COVID strategy in December. After a brief disruption due to a surge in cases, the economy has begun showing signs of recovery.
Recently, an official index of non-manufacturing activity soared to its highest level in over a decade, suggesting that the crucial services sector is benefiting from a revival in consumer spending following the lifting of pandemic restrictions.
With the economic recovery gaining momentum, investment banks and international agencies have revised up China’s growth forecasts for this year. In its latest World Economic Outlook, the International Monetary Fund stated that China is “rebounding strongly” following the reopening of its economy, projecting a GDP growth of 5.2% for this year and 5.1% for 2024.
Nevertheless, some analysts argue that the robust growth observed in the first quarter may be due to the “backloading” of economic activity from the fourth quarter of 2022, which had been hindered by pandemic restrictions and a chaotic reopening.
“Our main perspective is that the Chinese economy is in a deflationary state,” stated Raymond Yeung, chief economist for Greater China at ANZ Research, in a report released on Tuesday.
When adjustments are made to account for the impact of postponed economic activity, the GDP growth for the first quarter could have been only 2.6%, he noted.
Several critical data released on Tuesday reinforce this notion; for instance, private investment showed extremely low growth.
Private-sector fixed asset investment saw a mere 0.6% increase from January to March, reflecting a lack of confidence from entrepreneurs. (In contrast, state-led investment grew by 10%.) This performance is even worse than the 0.8% growth observed in the January-to-February period.
The Chinese government has implemented unexpected measures to restore confidence among private entrepreneurs; however, these initiatives have often instilled more anxiety than positivity.
The vital property sector is also experiencing a significant downturn, with investments in real estate declining by 5.8% in the first quarter. Property sales, measured by floor area, fell by 1.8%.
“While the domestic economy is showing signs of recovery, the challenges posed by inadequate demand remain evident,” commented Fu Linghui, a spokesperson for the NBS, during a news conference in Beijing on Tuesday. “Prices of industrial goods continue to decline, and businesses face numerous profitability challenges.”
Unemployment among younger individuals continues to rise.
The jobless rate for those aged 16 to 24 reached 19.6% in March, marking an increase for the third consecutive month and standing as the second highest on record, just behind the 19.9% noted in July 2022.
The elevated youth unemployment rate points to “slack in the economy,” according to Yeung.
“With a new wave of graduates set to enter the job market by June, the unemployment situation may worsen if China’s economic growth stalls,” he added.
The Ministry of Education in China has projected that a record 11.6 million college graduates will be seeking employment this year.
During last month’s session of the National People’s Congress, the government outlined a cautious growth strategy for this year, setting a GDP target of around 5% and a goal to create 12 million jobs.
