CLOUDS LINGER EVEN AS GROWTH BEATS FORECASTS
A weak property sector and trade frictions take some of the shine off first-quarter recovery and trigger calls for more government support
The nation’s latest economic growth figure has yielded mixed reactions as analysts flag concerns over a reliance on manufacturing and exports, both of which could face external tensions, and over a property market that remains in the doldrums.
First-quarter gross domestic product rose 5.3 per cent from a year earlier and 1.6 per cent from the previous quarter, beating forecasts and indicating an acceleration and positive momentum.
However, foreign investors are pondering how Beijing might be able to persuade households to loosen the purse strings while job and income uncertainties remain.
“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.”
The property sector continues to face downward pressure, with investments falling by 9.5 per cent in the first quarter, year on year, after a 9 per cent decline in the first two months.
ANZ Bank, which revised up its growth forecast after the quarterly data, estimated that the property crisis would cut GDP growth by 0.3 percentage points for the full year, while property investment was expected to fall 12 per cent.
The property sector used to account for as much as 20 per cent of economic activity, according to the International Monetary Fund. But in the first quarter, new construction project starts fell 27.8 per cent, and sold floor space dropped 19.4 per cent, according to the National Bureau of Statistics.
Larry Hu, chief China economist at Macquarie Capital, said the economy had seen a twospeed 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.”
The capacity-utilisation ratio has dropped to a four-year low at 73.6 per cent while industrial output in March rose by 4.5 per cent, year on year but 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 yesterday.
Year-on-year growth in 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 latest figures showed.
Eskelund said a step in the right direction would be for Beijing to offer more support to boost demand.
“Supply-side policies have been a contributor to the significant trade imbalances the country has accumulated with both the EU and the US,” he said.
“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, said that consumer confidence remained weak.
“It is uncertain to what extent German companies can benefit from this type of growth,” he said.
Although the first-quarter data showed Beijing on course to meet its full-year GDP growth target of “around 5 per cent”, analysts said policymakers were in a race against time to bolster domestic demand and introduce stronger support for the property market.
“We believe continued policy easing is still necessary, especially on the demand-side (e.g. fiscal, housing and consumption),” Goldman Sachs economists wrote in a note, citing structural challenges from the property downturn, still-fragile confidence and the deleveraging of local government financing vehicles.
Ding Shuang, chief Greater China economist at Standard Chartered Bank, said Beijing should leverage its fiscal tools by issuing special treasury and local bonds to support economic growth in the second half.
Beijing intends to issue 1 trillion yuan (HK$1.1 trillion) worth of “ultra-long-term special government bonds” this year to help fund economy-boosting initiatives, technological innovation and integrated urban-rural development, among other purposes.
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, called for concrete action to stimulate domestic demand.
“There is still a need for more targeted policy measures to stimulate demand over the coming months,” Zheng said, noting how consumer and producer price indices have reflected persistent headwinds in domestic demand.