eBusiness Weekly
Bloomberg
China’s economy likely picked up in the first quarter as Covid Zero was abandoned, though key data this week are still expected to show some signs of unevenness that may call into question how sustainable the recovery is.
People filled restaurants and shopping malls again after the Covid curbs were lifted and a wave of infections passed, boosting spending and other activity. Construction also improved as the government increased investment in infrastructure, a usually reliable source of growth.
Factory output growth last month may have lagged, though, as business confidence remained shaky. Inflation last month was also muted, an indication of subdued domestic demand.
Gross domestic product data and other figures, including those for March industrial production, retail sales and unemployment, are expected to be released Tuesday at 10 a.m. local time. Here’s what to watch:
GDP growth
Gross domestic product likely grew 4% in the January-to-March period from a year prior, according to the median estimate in a Bloomberg survey of economists. That’s a faster pace than the last three months of 2022, when the economy expanded 2.9%.
But it would still be slower than the official annual growth target of around 5%, potentially fueling debate about whether more stimulus is needed.
Officials have taken a pro-growth stance on the economy this year, though they’ve so far avoided aggressive easing measures such as cutting policy interest rates — instead relying on adding cash into the financial system to encourage lending. Infrastructure investment, meanwhile, has been front-loaded so as to have an early impact on growth.
The People’s Bank of China kept the rate on its one-year policy loans unchanged on Monday, though some economists have suggested a reduction could happen in the coming months.
The central bank vowed in a Friday statement to step up support for the economy, saying that the recovery’s foundation is “not solid yet.” It added that credit growth will remain “reasonable.”
Consumer spending
Chinese authorities have bet on a rebound in consumption driving the economic recovery this year.
Economists are projecting that retail sales rose 7.5% in March, though the base of comparison is low since March last year is when the major financial and industrial hub Shanghai went into lockdown. Still, a big increase would push first-quarter retail sales up to 3.7%. Sales contracted 0.2% year-on-year for all of 2022.
Car sales — the single biggest spending item counted in retail sales — is an important factor to watch in determining momentum. Such sales were a bright spot in 2022, but car shipments have slumped this year as some of the tax breaks for purchases ended. Price wars between major automakers also kept buyers waiting for better deals.
Sales of passenger cars plummeted nearly 20% in January and February. Growth turned positive in March, though was still anemic at 0.3%.
The sustainability of the consumption rebound also hinges on how well the job market is improving. The urban unemployment rate is projected to have been 5.5% in March, slightly lower than February’s 5.6%.
Industrial production
Industrial output likely picked up a bit in March. Economists estimate output grew 4.4% last month from a year prior, according to the Bloomberg survey. That’s stronger than the 2.4% growth seen in the first two months of 2023 — likely a reflection of the increase in infrastructure investment, as well as the unexpectedly strong jump in export growth last month that suggested factory operations are normalizing.
Demand, though, remains uncertain. Bloomberg News recently reported that China is set to release this month a plan asking its steelmakers to keep this year’s output from exceeding 2022 levels, as tepid demand has forced mills to lower prices of the material.
Investment strength
Loan growth and government bond issuances have been strong to start off 2023. That’s expected to have boosted investment in the first quarter — particularly in infrastructure spending, a big focus so far this year.
Fixed-asset investment figures should provide some clues about how efficient existing liquidity support has been. Should manufacturing investment growth accelerate, that would also ease some concerns about how willing private businesses are to expand production.
Economists predict fixed-asset investment rose 5.7% in the first quarter, indicating a pickup in March, since investment rose 5.5% in the January-February period.
There are still questions about confidence among households and corporations, which are piling more into savings as caution prevails. That’s sparked concerns about whether the cheap liquidity released by authorities has been effective at fueling productivity.
Property weakness
Recent figures have shown a rebound in home sales and prices, though some developers remain pessimistic about the outlook for the housing market.
Economists expect property investment shrunk 4.7% in the first quarter, narrower than the 5.7% drop in the first two months of the year.
Trends are increasingly diverging between big and small cities, with lower-tier towns still struggling. Buyers are also more interested in existing homes due to lingering concerns on the delivery of new housing.
All that bode ill for land sales, a key source of income of China’s debt-laden local governments.
