China’s economy expands at faster-than-expected pace in Q1

Central bank announces surprise cut in bank reserve requirements

BEIJING, April 17, (RTRS): China’s economy grew at a slightly faster-thanexpected pace of 6.8 percent in the first quarter, buoyed by strong consumer demand and robust property investment.

Resilience in the world’s secondlargest economy will likely keep a synchronized global recovery on track for a while longer, even as China faces rising tensions with the United States that could impact billions of dollars in trade.

But economists still expect China to lose momentum in coming quarters as Beijing forces local governments to scale back infrastructure projects to contain their debt, and as property sales cool further due to strict government controls on purchases to fight speculation.

Consumption, which accounted for almost 80 percent of economic growth in the first quarter, played a significant role in supporting the economy even as risks grew for Chinese exporters.

March retail sales rose 10.1 percent from a year earlier, slightly more than expected and the strongest pace in four months, with consumers buying more of almost everything from cosmetics to furniture and home appliances.

“The retail sales data tells you a lot about consumption. It is not seasonal — if you look at growth in cosmetics, spending on clothing, spending on automobiles, there has been a persistent trend for a few months,” said Iris Pang, Greater China economist at ING in Hong Kong.

“Consumption is really strong, there is strong wage growth in urban areas. We underestimated the power of consumption in China.”

China’s export sector also posted solid growth in the first quarter, with shipments to the US jumping 14.8 percent on-year. Some analysts have speculated Chinese firms may have rushed out deliveries to the US as tariff threats loomed.

However, net exports overall were a drag on GDP growth in the quarter after giving an added boost to the economy last year, highlighting the need for sustained strength in domestic demand if significant new tariffs are imposed.

“We don’t expect (the US-China tensions) will evolve into a full-scale trade war, but we also argue this uncertainty will not disappear and we expect a bumpy road of negotiations. In terms of the impact of potential tariffs, it is pretty limited, particularly this year,” said Haibin Zhu, chief China economist at JP Morgan in Hong Kong.

Scenario

“Even in the worst scenario that both countries start to implement the $50 billion tariffs, we’re talking about a few tenths of a percentage point and most likely it will only start to affect the economy late this year and in 2019.”

Analysts polled by Reuters had expected January-March GDP to grow 6.7 percent from a year earlier, slowing marginally from the pace in late 2017.

China’s GDP has now grown 6.8 percent for three straight quarters, a remarkably steady pace for such a large and dynamic economy and reinforcing concerns about the reliability of official data.

On a quarterly seasonally adjusted basis, GDP grew 1.4 percent, slightly less than expected and easing from 1.6 percent in October-December, again suggesting the economy may be losing some steam.

China’s central bank unexpectedly said on Tuesday it will reduce the cash banks hold as reserves, a move that frees up lending for small firms but falls short of broad monetary easing, with the authority attaching requirements on how funds must be used.

Reserve requirement ratios (RRRs) — currently 17 percent for large institutions and 15 percent for smaller banks — will be cut by 100 basis points (bps), the People’s Bank of China (PBOC) said.