China GDP growth solid, but demand feeble

The utilization rate of industrial capacity plunged to 73.6% in the first quarter, the lowest level since 2020 and down from 75.9% the previous quarter

China’s economy grew faster than expected in the first quarter, data showed yesterday, offering some relief to officials as they try to shore up growth in the face of protracted weakness in the property sector and mounting local government debt.

However, a raft of indicators released alongside last month’s GDP data — including property investment, retail sales and industrial output — showed that demand at home remains frail and is retarding overall momentum.

The Chinese government has unveiled a raft of fiscal and monetary policy measures in a bid to achieve what analysts have described as an ambitious annual GDP growth target of about 5 percent, noting that last year’s growth rate of 5.2 percent was likely flattered by a rebound from a COVID-19-hit 2022.

GDP grew 5.3 percent in the first quarter from the year earlier, data released by the Chinese National Bureau of Statistics showed, comfortably above analysts’ expectations in a Reuters poll for a 4.6 percent increase and slightly faster than the 5.2 percent expansion in the previous three months.

“The strong first-quarter growth figure goes a long way in achieving China’s ‘around 5 percent’ target for the year,” Moody’s Analytics economist Harry Murphy Cruise said. “Industrial production also supported through the quarter, but weak March data is cause for some concern. Similarly concerning, China’s households continue to keep their wallets closed.”

On a quarter-by-quarter basis, GDP grew 1.6 percent in the first quarter, above the forecast for growth of 1.4 percent.

The world’s second-largest economy has struggled to mount a strong and sustainable post-COVID19-pandemic bounce, burdened by a protracted property downturn, mounting local government debt and weak private-sector spending.

The economy was off to a solid start this year, but last month’s data on exports, consumer inflation, producer prices and bank lending showed that momentum could falter again and reinforced calls for more stimulus to shore up growth.

Indeed, separate data on factory output and retail sales, released alongside the GDP report, underlined the persistent weakness in domestic demand.

Industrial output last month grew 4.5 percent from a year earlier, compared with a forecast increase of 6.0 percent and a gain of 7.0 percent in the first two months of the year.

China’s factories used less of their potential in the first quarter than at any time since the pandemic, a pullback that comes as US and European leaders scold Beijing for building up excess capacity.

The utilization rate of industrial capacity plunged to 73.6 percent in the first quarter, the Chinese National Bureau of Statistics reported yesterday. That is the lowest level since the first quarter of 2020 and down from 75.9 percent in the final quarter of last year.

Growth of retail sales, a gauge of consumption, rose 3.1 percent year-on-year last month, against a forecast increase of 4.6 percent and slowing from a 5.5 percent gain in the first two months of the year.

Following the improved firstquarter GDP outcome, economists at ANZ raised their China annual growth forecast to 4.9 percent from 4.2 percent, while BBVA maintained its 4.8 percent growth projection.

Most investors appeared to take the headline GDP surprise with a pinch of salt given the weakness of last month’s data.

Some analysts believe the central bank faces a challenge as more credit is flowing to production than into consumption, exposing structural flaws in the economy and reducing the effectiveness of its monetary policy.