China’s economy got off to a solid start in 2023 as consumers picked up spending after three years of severe pandemic restrictions.
Gross domestic product rose 4.5 percent in the first quarter from a year ago, according to the report National Bureau of Statistics Tuesday. That beats the 4 percent growth estimate in a Reuters poll of economists.
But private investment has barely budged and youth unemployment has risen to its second-highest level on record, indicating that the country’s private sector employers are still wary about longer term prospects.
Consumption recorded the strongest rebound. Retail sales rose 10.6% in March from a year earlier, the largest level of growth since June 2021. In the months from January to March, retail sales rose 5.8%, mainly boosted by a increasing revenue from the catering industry.
“The combination of a steady increase in consumer confidence as well as the still incomplete release of pent-up demand suggests to us that the consumer-led recovery still has room to run,” said Louise Loo, chief China economist for Oxford Economics.
Industrial production has also seen steady growth. It rose 3.9% in March, compared to 2.4% in the January-February period. (China usually combines economic data for January and February to account for the impact of the Lunar New Year holiday.)
Last year, GDP increased by just 3 percent, missing the official growth target of “around 5.5 percent” as Beijing’s approach to stamp out the coronavirus wreaked havoc on supply chains and hurt consumer spending.
After street protests swept the country and local governments ran out of cash to pay huge Covid bills, the authorities finally abandoned the zero-Covid policy in December. After a brief period of disruption due to a Covid outbreak, the economy has started to show signs of recovery.
Last month, an official gauge of non-manufacturing activity hit its highest level in more than a decade, suggesting the country’s crucial services sector was benefiting from a resurgence in consumer spending after the end of pandemic restrictions.
As the economic recovery gains traction, investment banks and international organizations have upgraded China’s growth forecasts for this year. In its World Economic Outlook published last week, the International Monetary Fund said China was “recovering strongly” after reopening its economy. The country’s GDP will grow by 5.2 percent this year and 5.1 percent in 2024, he predicted.
However, some analysts believe that the strong growth reported in the first quarter was the product of the “load” of economic activity in the fourth quarter of 2022, which was weighed down by pandemic restrictions and then a chaotic reopening.
“Our core view is that China’s economy is deflationary,” Raymond Yeung, chief economist for Greater China at ANZ Research, said in a research report on Tuesday.
If adjustments were made to account for the impact of lagged economic activity, first-quarter GDP growth could have been just 2.6 percent, he said.
Some key data released Tuesday support that idea. For example, private investment has been extremely weak.
Private sector fixed asset investment rose just 0.6% from January to March, pointing to a lack of confidence among entrepreneurs. (Meanwhile, state-led investment advanced by 10%). This is even worse than the 0.8% increase recorded in the January-February period.
The Chinese government resorted to surprising measures to restore the confidence of private entrepreneurs, but the campaign inspired more nervousness than optimism.
The all-important real estate industry is also mired in a deep recession. Property investment fell 5.8% in the first quarter. Property sales by floor area fell by 1.8%.
“The domestic economy is recovering well, but the constraints of insufficient demand are still evident,” Fu Linghui, a spokesman for the SNB, told a news conference in Beijing on Tuesday. “The prices of industrial products are still falling and businesses are facing many difficulties in terms of their profitability.”
Unemployment continued to rise among young people.
The unemployment rate for 16- to 24-year-olds hit 19.6% in March, rising for the third consecutive month. It was the second highest on record, behind only the 19.9% level reached in July 2022.
The high youth unemployment rate suggests “weakness in the economy,” Yeung said.
“By June, there will be a new batch of graduates looking for a job. Unemployment could worsen further if China’s economic momentum falters,” he added.
China’s Ministry of Education previously estimated that a record 11.6 million college graduates will be looking for a job this year.
At last month’s meeting of the National People’s Congress, the country’s top parliament, the government set a cautious growth plan for this year, with a GDP target of around 5% and a job creation target of 12 million .