In the first quarter of the current year, China’s economy showed growth that exceeded preliminary expectations, turning out to be a steady process, mainly as a result of the positive state of affairs in the high-tech segment of the manufacturing sector.
In the period from January 1 to March 31, 2024, the gross domestic product (GDP) of the mentioned Asian country increased by 5.3% year-on-year. The relevant information was published by the National Bureau of Statistics on Tuesday, April 16. It is worth noting that experts interviewed by the media predicted that China’s GDP for the first quarter of the current year will show growth of 4.6%. Also in this case, a noteworthy fact is that the mentioned indicator increased by 5.2% in the last three months of 2023. The dynamic of the first quarter of the current year indicates an acceleration in GDP growth.
Sheng Laiyun, a spokesperson for the National Bureau of Statistics, during a press conference held in Beijing regarding the release of the specified data, said that China’s economic system had shown a good start which will become a kind of base for the subsequent achievement of goals in 2024. At the same time, it was separately noted that the foundation for economic stability and improvement of the situation is not yet solid.
The sector of industrial production in China in the first quarter of 2024 showed a growth of 6.1% compared to the result for the same period last year. This result is largely due to the positive dynamics in the high-tech manufacturing segment. In particular, the making of 3D printing equipment, charging stations for electric vehicles, and electronic components grew by about 40% year-on-year.
In March, China’s manufacturing purchasing managers’ index (PMI) improved for the first time in six months, as evidenced by the results of an official survey. Unofficial studies confirm the growth of the mentioned indicator. In this case, a significant factor of the positive dynamic is the growing demand for Chinese manufacturers’ products abroad.
The Chinese leadership has set an economic growth target for 2024 at about 5%. Many analysts characterize this goal as too ambitious, explaining their point of view by the fact that the level of consumer and business confidence in the Asian country is low. Moreover, in this context, the protracted crisis in the Chinese real estate sector is mentioned.
Aiming the current terms, the financial authorities of the Asian country decided to cut interest rates. In this case, the goals were to stimulate bank lending and accelerate central government spending to support infrastructure investment.
Frederic Neumann, HSBC’s chief Asia economist, says China’s economy appears to be within reach of the official GDP growth target of around 5% in 2024.
The data, which was released by the National Bureau of Statistics on Tuesday, also shows that retail sales in the Asian country increased by 4.7% in the first quarter of the current year compared with the result for the same period in 2023. This dynamic is driven by rising costs for cigarettes and alcohol, catering services, sports, and entertainment. In March, the increase in retail sales in the Asian country slowed to 3.1% after 5.5% in February.
Investments in fixed assets, which include such factories as roads and power grids, increased by 4.5% year-on-year in the first quarter of 2024.
At the same time, China’s economic system in its present condition is not an example of a symbolic cloudless space and continues to face problems. Harry Murphy Cruise, an expert at Moody’s Analytics, says that nowadays there is an increasing mismatch in the Asian country’s economy, which is that manufacturers do the heavy lifting and households sit on the sidelines.
The positive indicators of the manufacturing industry are related to the activities of its three segments, including the fabricating of electric vehicles, the production of solar panels, and the making of batteries.
Harry Murphy Cruise says that Beijing has spent significant funds to support the mentioned spheres of activity of strategic importance, and now it is getting results. Production in the specified segments of the Chinese manufacturing system is growing. Also, the positive dynamic is demonstrated by the export of products, especially electric vehicles.
Currently, there is increasing concern in the United States and the European Union that China’s overcapacity in the mentioned segments of the production system is flooding global markets and hindering the development of homegrown makers of the specified countries.
US Treasury Secretary Janet Yellen, as part of comments following her visit to China last week, made a statement indicating Washington’s readiness to intervene with tariffs to curb the flow of goods from the Asian country. Harry Murphy Cruise says that the implementation of such measures will mean for Beijing a deterioration in the prospects for the development of the manufacturing sector.
Also, the crisis in the real estate sector is a negative impact factor for the Chinese economic system. According to the National Bureau of Statistics, in the first quarter of 2024, investment volumes in the area of property fell by 9.5% compared to the result for the same period last year. Sales of new real estate also demonstrated a negative dynamic. In the first quarter of 2024, the corresponding indicator fell by 27.6% year-on-year.
Prices for new housing in 70 Chinese cities in the period from January to March of the current year showed a decrease of 2% compared to the figure observed in early 2023. These data are based on calculations by Goldman Sachs, taking into account information from the National Bureau of Statistics.
Harry Murphy Cruise says that the problems in the Chinese real estate market continue. This negative situation is a factor of pressure on consumer spending. This correlation is explained by the fact that 70% of the wealth of the Asian country’s households is tied to real estate.
The growth of household spending is hampered by very pessimistic employment prospects and uncertainty, which is the main characteristic of the current condition of China’s economic system.
Data from the National Bureau of Statistics shows that Chinese households’ confidence in employment and income is approaching a historic low. Chaoping Zhu, global markets strategist at JPMorgan Asset Management in Shanghai, says that retail sales fell against this background in March, noting that the impact factor was also the fact that demand increased in February due to the Lunar New Year holidays.
Foreign investors’ confidence in China’s economic system is also weak at the moment. It is worth noting that overseas financial injections in the past have become one of the most important factors in the growth of the Asian country’s economy.
In the first quarter of 2024, investments increased mainly due to state-owned enterprises, which spending turned out to be 7.8% more than a year ago. Private sector investments showed an increase of 0.5%. Financial injections of foreign companies in China shrank by 10.4% in the first quarter of 2024.
For Beijing, restoring economic growth is a priority goal for the current year. As part of the relevant efforts, the Chinese authorities are seeking to gain foreign investors.
On Tuesday, the head of the People’s Republic of China Xi Jinping held a meeting with German Chancellor Olaf Scholz, who arrived in Beijing and urged the two countries to intensify trade and deepen cooperation in areas of machinery, automotive, and artificial intelligence. This statement was made at a time when the EU complained about the excessive distribution of products from an Asian country.
On Monday, April 15, Olaf Scholz said that Germany welcomes car imports from China. At the same time, he warned against dumping, overproduction, and intellectual property infringements.
In March, Xi Jinping held a meeting in Beijing with more than a dozen company executives and academics from the United States, inviting them to continue investing in China. Also at that time, he expressed confidence that the Asian country will maintain healthy and sustainable economic growth in the coming months.
In 2023, China’s economy showed growth of 5.2%. In 2022, the corresponding figure increased by 3% against the background of restrictive measures that were introduced due to the coronavirus pandemic and have become a factor slowing down many business and production processes. It is worth noting that the acceleration of economic growth in China last year does not negate the fact that the corresponding dynamic is one of the worst in the last three decades.
In recent months, foreign direct investment in the Asian country has sharply shrunk. Confidence in the world’s second-largest economy has weakened significantly amid slowing growth, harsh regulatory measures, burdensome national security legislation, and uncertainty about Beijing’s long-term prospects.
Harry Murphy Cruise says that the figures for the first quarter largely contribute to achieving China’s economic growth target. According to the expert, the long-term prospects depend on the expansion of factors of the positive dynamic.
Xiaojia Zhi, chief economist for China at Credit Agricole, says that it may be difficult for markets to be convinced by the high GDP growth rates of the Asian country in the first quarter of 2024 against the background of the fact that the March data were not so optimistic and in a negative sense significantly differ from the figures for the previous two months. The expert also says that against the background of the dynamic, which is on an upward trajectory, there is a risk that Beijing will not fix the need for policy easing.
Chang Shu, chief economist for Asia at Bloomberg Economics, states that positive data on the Asian country’s GDP for the first quarter of 2024 do not eliminate doubts about the sustainability of the relevant tendency. In this context, the expert noted that the dynamic observed in the period from January to March was almost completely driven by public investments. Chang Shu also said that the recovery of the world’s second-largest economy is on thin ice.
Experts of Australia & New Zealand Banking Group Ltd and DBS Group Holdings Ltd. raised their forecasts for the annual growth of China’s economic system to 4.9% and 5%, respectively, after the data from the National Bureau of Statistics were published. Nathan Chow, the senior economist at DBS, explained the revision of Beijing’s prospects by the fact that in the United States, demand for products from the Asian country exceeded expectations and the improvement in the labor market.
It is worth noting that the dynamic of the growth of China’s economic system may also face an obstacle in the form of a difficult geopolitical situation. In this context, it is worth mentioning that Washington restricts Beijing’s access to advanced chips and equipment necessary for the manufacturing of these products. The mentioned measures by the United States are unequivocally negative factors since microcircuits are critically important components in most segments of the production system, including in the area of making innovative goods. China is also within the impact zone of global economic and political tendencies, which are currently largely determined by factors such as high interest rates in the US and tensions in the Middle East. On Tuesday, the gauge of regional stocks in Asia fell the most since August last year. The negative dynamic also demonstrated a global index of emerging market currencies. The Indonesian rupiah and the South Korean won weakened to multi-year lows.
Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered Plc, says that Chinese policymakers, against the background of positive data for the first quarter of 2024, may reduce the intensity of implementation of measures to stimulate economic growth. The expert noted that the government of the Asian country has yet to publish a clear plan for ultra-long special sovereign bonds, which this year will become the main fiscal instrument to shore up domestic demand.
Zhiwei Zhang, president and chief economist of Pinpoint Asset Management, says that cutting interest rates by the Federal Reserve against the background of inflation data in the United States seems less likely, which is why the chances that the central bank of China will start lowering borrowing costs are also decreasing.
As we have reported earlier, China Reports Inflation Data.
