China’s economic recovery ‘mixed’ as industrial output, retail sales, investment grow, but job pressure remains
- Industrial production, retail sales and fixed-asset investment in China all grew in combined figures for January and February released on Wednesday
- The fall of property investment slowed, while the urban surveyed unemployment rate and the jobless rate for the 16-24 age group also rose slightly
China’s economy continued to show a mild but “mixed” recovery at the start of the year, but its resilience could still be tested by domestic employment and real estate pressures, coupled with a complex external environment, analysts said.
Industrial production, retail sales and fixed-asset investment all grew in combined figures for January and February released on Wednesday, and while the fall of property investment slowed, the urban surveyed unemployment rate also rose slightly.
Retail sales beat expectations and rose by 3.5 per cent, year on year, and while industrial production rose by 2.4 per cent compared to a year earlier, the expansion in the gauge that measures activity in the manufacturing, mining and utilities sectors fell short of expectations, reflecting overall weak growth in global output levels this year.
Industrial production in the United States grew by just 0.8 per cent, year on year, in January, supporting a World Bank prediction that worldwide economic output will be just 1.7 per cent in 2023.
The data, the first major indicator to gauge China’s economic performance after its reopening, also compared with Vietnam’s industrial production rising by 3.6 rise in February, year on year, following a fall of 8 per cent in January.
China’s consumer-led rebound has begun in earnest, although the strong beat in retail sales is likely to also be helped by festivities-related spending and medicine-related expenditure amid the Covid-exit waves and winter flu season
Beijing has refocused on economic recovery this year, with its trajectory expected to shape the global economy, but it is also keeping a close eye on the unfolding shock waves following the fall of Silicon Valley Bank and whether the crisis will affect the US Federal Reserve’s interest rate increase decision next week.
“China’s activity data at the beginning of 2023 was mixed, with industrial production and retail sales generally in line with expectations, while fixed-asset investment beat [expectations] on the upside, suggesting that the infrastructure investment has been picking up thanks to government support,” said Zhou Hao, a senior analyst at Guotai Junan Securities.
Fixed-asset investment – a gauge of expenditure on items including infrastructure, property, machinery and equipment – rose by 5.5 per cent in the first two months of 2023, year on year, up from a rise of 5.1 per cent last year.
The urban surveyed unemployment rate, meanwhile, stood at 5.6 per cent in January and February, up slightly from 5.5 per cent in December. The jobless rate for the 16-24 age group in February remained at an elevated level of 18.1 per cent, up from 16.7 per cent in December.
“China’s consumer-led rebound has begun in earnest, although the strong beat in retail sales is likely to also be helped by festivities-related spending and medicine-related expenditure amid the Covid-exit waves and winter flu season,” said Louise Loo, lead China economist at Oxford Economics.
Loo, though, pointed to the 10.5 per cent year-on-year growth in state-driven investments, compared with “a more modest” 0.8 per cent increase in private investments, adding that “we remain cautious”.
Real estate investment in January and February fell again after dropping by 5.7 per cent compared with the same period last year, but the decline was at a slower pace compared with the 12.2 per cent drop in December.
“Property sector data also appears to [show] real estate investments now declining at a slower pace for the first time since 2021,” Loo added.
China’s economic data for January and February is combined to smooth out the impact of the Lunar New Year holiday, which falls at different times during the two months in different years.
Why did Beijing set a moderate target for China’s GDP in 2023?
“As the [lifting of the] Covid-19 prevention and control [measures] entered a more rapid and steady phase, the unimpeded economic flow was accelerated, production and demand improved notably and the economy showed a steady recovery,” said National Bureau of Statistics spokesman Fu Linghui.
“However, the global environment is more complex than before. The inadequate demand in the economy remains prominent, and the foundation for economic recovery is not solid yet.”
Geopolitics, unilateralism and protectionism, though, have created pressure on global economic growth, he added.
Beijing has refocused economic recovery this year to restore business confidence in the world’s second-largest economy.
New Premier Li Qiang said on Monday that the government would “priorities stability” in economic growth, employment and prices this year.
Fu pointed to “seasonal factors” as a reason for the increase in the urban surveyed unemployment rate at the start of the year, adding that “the changes from January to February are still comparatively small considering the same period in the past”.
“This year we will push for more stability in overall employment. The key to this is still to develop the economy,” he said.
“We expect the Chinese economy to further rebound in the next few months as it will start to enjoy huge base effects then, partially masking the challenges concerning faded exports and property market stagnancy,” she said.
