China's post-Covid year gets off to a disappointing start

Costco’s third store in mainland China began trial operation on March 10, 2023, in Shanghai’s Pudong district.

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BEIJING — China on Wednesday reported retail sales growth for the first two months of the year that only matched expectations, while real estate investment fell further.

Industrial production for the January-February period rose by 2.4%, less than the 2.6% expected by a Reuters poll.

The data reflect “steady rather than accelerating momentum, which also indicates strong policy support is needed to unleash the growth potential,” said Zhou Hao at Guotai Junan.

Retail sales climbed by 3.5%, in-line with expectations. Most categories within retail sales rose, but big-ticket items of autos and home appliances saw sales decline. Online retail sales of physical goods rose by 5.3% for the first two months of the year from a year ago.

Fixed asset investment rose by 5.5%, topping expectations for 4.4% growth.

But within that category, investment in real estate fell by 5.7% in January and February from a year ago. That follows a 10% drop in real estate investment for all of last year. Infrastructure and manufacturing investment rose at a slower pace in the first two months of the year than in 2022.

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“There are not many bright spots in today’s data,” said Bruce Pang, chief economist and head of research for Greater China at JLL.

However, he pointed out that retail sales were little changed in February from January, based on official data. He added that the latest pickup in investment growth was rather surprising since it had already grown significantly at the start of last year.

Pang expects the real estate market to recover later this year, especially since he said March traditionally marks the peak of housing supply for the year.

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Wednesday’s official data releases combined January and February figures — as is the Chinese statistics bureau’s custom — to avoid distortions from the Lunar New Year. The holiday, the biggest of the year in China, marks a travel period of more than a month and can fall in either month depending on the year.

The figures mark the first full months since China ended its stringent Covid controls in early December.

Preliminary data and anecdotes indicate tourism and dining out at restaurants have rebounded, but consumer spending overall remains tepid. Business surveys meanwhile point to a surge in manufacturing activity.

“The external environment is even more complex, inadequate demand remains prominent and the foundation for economic recovery is not solid yet,” China’s National Bureau of Statistics said in a release.

The bureau called for boosting market confidence and achieving “reasonable growth of quantity.”

China’s growth target

Chinese authorities this month announced a growth target of around 5%, which new premier Li Qiang cautioned would not be easy for the country to achieve.

When asked about the GDP target Wednesday, Fu said if growth was too slow, it might expose the problems in China’s economy, increasing risks.

But setting too high of a target would not be beneficial for realizing “high-quality development,” Fu said, using to Beijing’s phrase for describing a shift away from only focusing on rapid growth.

Global economic worries

Exports, a major driver of China’s economy, have slowed sharply. Demand from major trading partners such as the U.S. has fallen as those economies face surging inflation and slower growth.

Fu on Wednesday reiterated price increases in China have remained relatively subdued, and that the country could achieve its goal of around 3% inflation this year.

Analysts have said China’s muted inflation reflects lack of domestic demand.

Fu also spoke pointedly about the pressure on China’s economy from the global environment, without naming specific countries.

“With high inflation, some economies may continue to tighten monetary policy, which will further restrain global growth,” Fu said, according to a CNBC translation of the Chinese remarks.

“At the same time, in the international environment, geopolitics, unilateralism and protectionism are on the rise, and their pressure on global economic growth will gradually become evident.”


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