China’s economy strengthened in the first two months of the year following the end of Covid restrictions, although the recovery remains unbalanced as industrial output lagged.
Retail sales rose 3.5% from the same period last year, the National Bureau of Statistics said Wednesday, in line with forecasts and reversing from a 1.8% drop in December.
Industrial output rose at a slower-than-expected pace of 2.4%, while the jobless rate increased following the Lunar New Year holidays. Fixed-asset investment grew strongly, a sign the government is boosting infrastructure spending to spur the recovery.
“This probably reinforces the view that even if we have a sequential upswing on China rebound on the back of the reopening, it’s not going to be like a big boom,” Johanna Chua, chief Asia Pacific economist at Citigroup Global Markets, said in an interview on Bloomberg TV.
China abruptly dropped its Covid Zero strategy in December, leading to a surge in infections through January. Cases peaked earlier than expected, though, prompting people to travel and spend again and providing a boost to the services sector. Factories also benefitted as logistics bottlenecks and restrictions ended, but production was also affected by the long holiday and the infection wave.
The NBS said activity “stabilized and rebounded” in the first two months, although the global environment remains uncertain and there’s still insufficient demand in the economy.
The bureau usually combines the data releases for the two months of January and February to avoid distortions from the Lunar New Year holiday, which can fall in either month depending on the year.
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Chinese stocks held on to their strong opening gains after the data as equity markets in the region recovered from recent losses triggered by concerns about the health of the US banking system.
The CSI 300 Index of stocks gained 0.6% as of 10:55 a.m. local time, while future contracts of 10-year bonds fell 0.1%. The yuan was little changed.
A breakdown of the retail data shows sales of Chinese and western medicine rose the fastest, by 19.3% in the two month period. Sales of petroleum and its products grew 10.9% and catering rose 9.2%.
What Bloomberg Economics Says…
China’s first comprehensive set of “hard” data for the first two months of the year show the recovery is well underway — but isn’t as eye-popping as early survey data suggested. Retail sales swung back to growth, and industrial output accelerated. But the biggest driver was infrastructure investment — raising the risk that the growth spurt is overly dependent on government support.
Chang Shu and David Qu
Investment picked up as local governments boosted sales of special bonds to more than 800 billion yuan ($116 billion) in the first two months of the year to front-load spending in infrastructure. The issuance accounts for over a fifth of this year’s total allowance of 3.8 trillion yuan for such debt.
The rebound will be encouraging news to the top leadership, who have made economic growth a top priority this year. Beijing set a modest target for gross domestic product growth of around 5% for this year, signaling it will avoid any big stimulus through infrastructure investment or the property market. However, a fairly ambitious job creation goal of “around 12 million” suggests policy will remain supportive.
Earlier on Wednesday, the central bank boosted net cash injections into the financial system by the most since December 2020, providing banks with additional liquidity as demand for loans picks up.
China’s new Premier Li Qiang said Monday the growth target “is not an easy task“ and “requires redoubled efforts.” The nation will prioritize stability in growth, prices and jobs, while seeking to make progress in high-quality development, he said.
The economy is expected to grow 5.3% this year, according to economists surveyed by Bloomberg. However, a number of risks cloud the outlook, including waning global demand, a struggling property market and rising geopolitical tensions.
Wednesday’s data points to “a steady rather than accelerating momentum,” said Zhou Hao, chief economist at Guotai Junan International Holdings. “Strong policy support is needed to unleash the growth potential.”
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