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China’s GDP grew at 4.5% in the first three months of 2023, the fastest pace since last year, as per data by the country’s National Bureau of Statistics (NBS). This expansion exceeded experts’ predictions of a growth rate of 4%. Additionally, the country’s GDP grew by 2.2% since the fourth quarter of FY22.
Last year, the country’s economy reeled under the government’s stringent zero-Covid policy and grew by only 3%, failing to meet the official target of around 5.5% GDP growth. However, Covid-19 restrictions were lifted in late 2022. Following this, Beijing has set a 5% GDP growth rate objective for 2023.
“(China) GDP rebounded more quickly than expected in Q1 thanks to a rapid return to normality following last year’s virus disruptions. With consumer confidence on the mend and credit growth accelerating, there is still scope for a further pick-up in activity over the coming months. We now think official GDP growth will reach 6.0% this year,” Capital Economics said in a report.
China GDP boosted by higher consumer spending
China GDP growth received a boost from the country’s retail sales, which increased by 10.6% in Q1 of 2023. The government is pushing for a consumer-led economy and considers China consumption a key pillar for economic growth. In addition, the Chinese catering market, severely impacted by the Covid-19 outbreak, expanded by 13.9% during the same period, demonstrating a resurgence in the country’s hospitality sector.
“The main reason for the faster-than-expected growth was much stronger growth in retail sales…Such rapid retail sales growth has not been seen since June 2021, when it grew 12.1%YoY. The growth in retail sales was mainly boosted by catering,” said ING.
Along with that, sales of consumer goods increased by 5.8% in Q1 of FY23 after falling by 0.2% last year. This coincides with a rise in Chinese consumer incomes, as per a survey conducted by the country’s central bank. Besides, the country’s consumer inflation in March 2023 was the slowest since September 2021, recording an increase of 0.7% year-on-year.
Among gains in other sectors of China’s GDP, industrial output increased by 3.9% in Q1, remaining below the projected rate of 4.4%.
In addition, there was a rise in energy and commodities output in March, with oil processing expanding by 8.8%, coal production increasing by 4.3% and natural gas production rising by 4% — all witnessing record growth for a single month. The country’s exports also increased in March, recording a 14.8% rise from last year after five months of decline.
Furthermore, the services sector of China expanded by 5.4% during Q1 of 2023, as the index of services production gained 9.2% during the same period, as per government data.
“However, we must be aware that the situation abroad is still complex and volatile, inadequate domestic demand remains prominent and the foundation for economic recovery is not solid yet,” said the NBS upon releasing the latest China GDP figures.
China GDP hampered by fall in real-estate investments
Despite healthy growth in various sectors across China’s GDP, the country is still plagued by a crisis in its property market. While fixed asset investment in the country grew by 5.1% year on year in 2023, investment in real estate development shrank by 5.8%.
“This could be due to the large housing inventories in the market even though property developers that have not defaulted on their bonds and loans should be able to get financing to continue their existing construction,” as per ING.
The fall in real estate investments has affected China’s GDP as consumption of durable goods like household appliances and decoration materials has fallen by 1.4% and 4.7%, respectively, in Q1.
“While public sectors are leading fixed asset investment (1Q2023: 10% yoy), investment growth was only at 0.6% yoy in private sectors, suggesting business confidence still has a long way to go to be fully restored,” said Chaoping Zhu, Global Market Strategist at J.P. Morgan Asset Management.
Besides that, issues linger in China’s job market, with wages for urban dwellers increasing by only 2.7% year on year in the first quarter of 2023, well below the 5% pre-pandemic rate. Meanwhile, the country’s urban unemployment rate stayed at 5.3% in March 2023, while youth unemployment rates rose to 19.6%.
“On policy side, policy makers might maintain a tone for proactive fiscal policy and prudential monetary policy, while structural measures might be adopted to address those weaknesses,” claimed Zhu.
“Combining with further downward revision in U.S. equity earnings, we expect to see Chinese equities outperform in the near term. In the long run, we continue to prefer advanced manufacturing sectors, which should benefit from expanding domestic market and sustained policy supports,” Zhu adds.
