Chinese Economy Grew More Than 18% in First Quarter

The year-over-year GDP growth rate will almost certainly trend lower in coming quarters

By Jonathan Cheng

The Wall Street Journal

Wall Street Journal expect the Chinese economy to grow 8.5% in 2021 from a year earlier.

The Chinese recovery now faces a raft of challenges as it enters a second year, including nascent signs of inflation, a lagging consumer recovery, worries about asset bubbles and rising geopolitical tensions that could hurt trade. Unemployment is also hovering near a ceiling that authorities have targeted, though Beijing’s most closely watched metric, the surveyed urban unemployment rate, eased to 5.3% in March from 5.5% a month earlier. Also, longer-term demographic hurdles are also manifesting themselves, prompting officials to consider policies to increase the country’s rapidly falling birthrate.

Inflation has become more concerning in recent weeks, as rising prices for copper, aluminum and steel have prompted makers of home appliances, for example, to raise the prices of their products, even though many haven’t yet returned to their pre-virus sales levels.

Midea Group, a large appliance maker based in the southern province of Guangdong, increased the prices of its refrigerators by 10% to 15% beginning last month, citing the rapid run-up in raw material prices.

Hefei Meiling Co., an appliance maker based in eastern China’s Anhui province, said it expects to rack up a modest net profit

equivalent to between $690,000 and $840,000 in the first quarter of 2021, after suffering a loss of about $40 million in the year-earlier period. Though the company attributes its rebound to China’s successful containment of the coronavirus and recovering domestic demand for refrigerators, washing machines and air conditioners, Hefei Meiling also expressed concerns about rising commodity prices eating into profitability.

On domestic consumption, meantime, hopes for a full recovery were stymied throughout the latter half of 2020 by periodic Covid-19 flare-ups, which kept a lid on travel, restaurant dining and other spending. Instead, manufacturing and exports largely drove the economic recovery last year.

That might be starting to change a year after the initial outbreak, as vaccinations begin to be rolled out and new infections decline. Sentiment among Chinese consumers recovered to its pre-pandemic level for the first time in March and then continued to build on those gains in the first half of April, according to surveys conducted by research firm Morning Consult. “Chinese consumers have emerged from the pandemic even stronger than they were before,” said John Leer, an economist at the research firm.

In March, retail sales jumped 34.2% from a year earlier, the National Bureau of Statistics said Friday. The result was higher than 33.8% growth posted in the first two months of the year and beat economists’ expectation for 28% growth. In month-on-month terms, retail sales rose 1.75% in March, accelerating from 0.56% in February.

Other closely watched indicators also posted double-digit percentage growth in year-over-year terms, though the growth rates were lower than those during the January to February period, which were measured against the historically low base from a year earlier.

Industrial output rose 14.1% in March from a year earlier, down from 35.1% year-over-year growth in the January to February period and lower than a 16.5% pace expected by the economists polled by The Wall Street Journal.

China’s fixed-asset investment rose 25.6% from a year earlier in the first quarter, slowing from 35% in the January to February period.

Home sales by volume, a major indicator of demand, soared 95.5% in the first three months of 2021 from a year earlier, though the pace was slower than the 143.5% year-overyear gain in the first two months of the year. Real-estate investment in China rose 25.6% in the January-toMarch period, compared with a 38.3% gain for the January-toFebruary period.

—Grace Zhu and Bingyan Wang contributed to this article.