China economy beats growth expectations

But retail and industrial figures disappoint

China’s economy expanded far more than expected in the first quarter of this year, data showed yesterday, but disappointing retail and industrial figures suggested leaders face severe headwinds to hit their annual growth target.

Beijing has set a goal of around 5% for 2024, which officials have already admitted will “not be easy” and which analysts said was ambitious given the challenges the world’s second-largest economy is confronting.

For the first three months of the year, gross domestic product rose 5.3%, compared with 5.2% in the previous quarter, the National Bureau of Statistics (NBS) said.

The figures well exceeded analysts’ expectations, with those pooled by Bloomberg having forecast 4.8%.

“The national economy continued the good momentum of a rebound,” the NBS said, calling it a “good start”.

The GDP data remains a key insight into the health of the world’s second-largest economy, despite being eminently political.

Yesterday’s figures “beat the market expectation by a wide margin”, said Dan Wang, chief economist at Hang Seng Bank China.

“Consumption and housing investment (were) the main drag, while manufacturing and infrastructure were the main engines.”

It reflects “the fundamental policy shift from a focus on (the) consumer market and service sector to ... industrial growth”, she said.

But woes in the property market remained a millstone for the economy as home prices continued to fall and top developers including Country Garden and Vanke sent out distress signals over their profits and challenges paying off debt.

Reflecting those difficulties, last month also saw a fall in property prices in China’s major cities, data showed.

Fears about a return to deflation are also looming.

Derek Scissors, a senior fellow at the American Enterprise Institute, warned that “the good news ends” with the real GDP figure, which is adjusted to take into account inflation.

“Deflation is evident in GDP and in producer prices,” he said, adding that “benchmark indicator retail sales were slower than last year at this time”.

“There are two reads on the full set of figures – China’s surprising real GDP growth is unsustainable or China’s surprising real GDP growth is fake.”

Some sectors are doing well, notably services, as customers return to restaurants, travel internally and visit tourist spots.

However, both retail sales – the main indicator of household spending – and industrial output slumped last month, officials said.

Retail sales grew just 3.1% on-year, down from 5.5% in the first two months of 2024, while industrial production rose 4.5%, compared with 7% in January-February.

The unemployment rate fell last month to 5.2%, from 5.3% in February.

That figure, however, paints an incomplete picture as it only includes workers in cities, effectively excluding millions of migrant labourers from rural areas who are particularly vulnerable to the downturn and whose situation has been exacerbated by the housing crisis.