China’s GDP growth beat expectations – so why are analysts and business groups still downbeat?
- Weak consumer confidence, red flags in the property sector and trade uncertainties demand attention, according to economists
- And while first-quarter GDP data shows China is on course to meet its full-year target, policymakers are being called on to bolster demand and introduce policy support
China’s quarterly macroeconomic data has sent mixed signals concerning the country’s outlook while triggering fresh calls for greater stimulus measures, as new growth drivers such as electric vehicles receive growing scrutiny overseas and the property market remains in the doldrums.
Meanwhile, foreign investors are pondering how Beijing might be able to persuade Chinese households to loosen the purse strings as their job and income uncertainties remain high.
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“It is too early to cheer for a full rebound in sentiment, as growth will likely see a gradual deceleration in the coming quarters,” said Gary Ng, a senior economist at Natixis Hong Kong.
“The downside risk [in China’s economy] is how quickly the drag from property investment will diminish, and whether households are willing to spend more and save less.”
Beijing said the nation’s property sector continues to face downward pressure, with investments falling by 9.5 per cent in the first quarter, year on year, further suppressed from 9 per cent in the first two months.
ANZ Bank, which revised up its China growth forecast on the better-than-expected quarterly data, estimated that the property crisis will drag GDP growth by 0.3 percentage points for the full year, while property investment is expected to drop by 12 per cent.
In its heyday, China’s property sector used to account for as much as 20 per cent of the nation’s economic activity, according to the International Monetary Fund.
But in the first quarter, the start of new construction projects was down 27.8 per cent, and sold floor space dropped by 19.4 per cent, according to year-on-year figures from the National Bureau of Statistics (NBS).
Larry Hu, chief China economist at Macquarie Capital, said the economy has seen a two-speed recovery with rising exports and weak domestic demand – a model that could face hurdles in the form of trade tensions and overcapacity issues.
“Robust exports are aiding the [GDP-growth] goal and buying Beijing more time to deflate property,” Hu said.
“However, once Beijing faces new trade frictions impacting the export sector, its policy focus will inevitably shift to bolstering domestic demand and implementing timely real estate policies.”
For growth to be sustainable, China will need to address a list of structural issues, including weak consumption
China’s capacity-utilisation ratio has dropped to a four-year low at 73.6 per cent. Industrial output in March rose by 4.5 per cent, year on year, and surprisingly dropped by 0.08 per cent on a monthly basis.
“For growth to be sustainable, China will need to address a list of structural issues, including weak consumption – retail sales data for March, which was also published along with the GDP figures, indicated a continued slowdown in growth in this area,” Jens Eskelund, president of the European Union Chamber of Commerce in China, said in a written response to questions on Tuesday.
Year-on-year growth of retail sales, a key gauge of consumption, moderated to 3.1 per cent in March from 5.5 per cent growth in combined figures for January and February, the NBS said on Tuesday.
It is uncertain to what extent German companies can benefit from this type of growth
From Eskelund’s perspective, “a step in the right direction” would be for Beijing to offer more support to boost demand in China.
“Supply-side policies have been a contributor to the significant trade imbalances the country has accumulated with both the EU and the US,” he added.
“European companies also hope to see tangible steps from the Chinese government to tackle regulatory and market-access barriers that currently impede the flow of foreign investment into the country.”
Maximilian Butek, executive director of the German Chamber of Commerce in eastern China, also pointed out that consumer confidence in China remains weak.
“It is uncertain to what extent German companies can benefit from this type of growth,” Butek said.
Although the first-quarter data showed Beijing on course to meet its full-year GDP growth target of “around 5 per cent”, analysts suggest policymakers are in a race against time to bolster domestic demand and introduce stronger property support.
Ding Shuang, chief Greater China economist at Standard Chartered Bank, said Beijing should leverage its fiscal tools by timely issuing special treasury and local bonds to support economic growth in the second half of the year.
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Another gauge of investor confidence, private investment, grew by 0.5 per cent in the first three months of the year, compared with a fall of 0.4 per cent in 2023.
Eric Zheng, president of the American Chamber of Commerce in Shanghai, also called for concrete actions to stimulate domestic demand.
“We are pleased to see solid GDP growth in the first quarter – a clear indication of momentum in China’s economic recovery. Economic performance is a top factor for our members’ confidence in the Chinese market,” he said.
“There is still a need for more targeted policy measures to stimulate demand over the coming months,” Zheng added, noting how consumer and producer price indices have reflected persistent headwinds in domestic demand.
