Consumers in China, though wary of big-ticket purchases like cars or apartments, are spending again. Many factories are still operating below capacity, but exports are boosting. Even as new housing construction slows, investment in infrastructure and manufacturing is strong.
Despite lingering pockets of economic weakness, China is recovering faster than expected after the government abruptly lifted strict “zero Covid” measures in early December.
The economy grew 4.5 percent from January to March compared to the same months in 2022, the National Bureau of Statistics said on Tuesday. The growth was largely driven by consumers: retail sales, a measure of spending, jumped 10.6 percent in March from the year in It preceded it despite the decline in car sales.
The stakes for the rest of the world are high after China experienced its worst economic performance in decades last year. For most of the past two decades, China has been the single largest engine of global growth. Despite rising tensions with the United States, and growing disagreements with Europe, China remains deeply interdependent with both countries’ economies at an uncomfortable time. The International Monetary Fund warned last week that the world faces an increased risk of a painful slowdown this year as central bankers in the West raise interest rates and banks default.
Tuesday’s GDP report indicates that China, the world’s second-largest economy, is coming back to life.
“Quarterly growth is starting to show a hopefully healthy recovery,” said Louise Lu, China economist at Oxford Economics in Singapore. “And a very good growth pace of 4.5 percent year-on-year at this early stage of reopening also provides space for the authorities to provide support to weaker sectors of the economy as needed.”
China has taken steps to stimulate growth. The government is investing in high-speed rail lines, highways, and bridges, money that helps boost jobs and consumers. The central bank, the People’s Bank of China, told commercial banks last month that they could hold slightly smaller reserves against potential losses, allowing them to lend more.
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This year’s stock and bond market downturn has been excruciating, and it’s still hard to predict what the future holds.
Growth in the first months of this year was a significant improvement from the 2.9 percent pace in the fourth quarter of last year, when the disease wave swept across the country after control of the epidemic was lifted, and is approaching Beijing’s 5 percent target. scheduled for 2023.
Spending was strongest on services such as travel and meals. Hotels in Beijing and Shanghai that stopped elevators last year and often had one-on-one dinners in 200-seat restaurants now find themselves with lines of people waiting for a table at breakfast. Most of this activity has been driven by Chinese consumers, as flights to the country have been slow to resume.
At the same time, China faces several serious headwinds, including a widening gap in government budgets, as revenues lag and spending increases. The slow housing collapse remains a drag on the economy. New home, office and shop construction contracted by 5.8 percent in the first quarter compared to the same period last year.
The local economy of Suzhou, a city on the Yangtze River near Shanghai, shows many national trends. Consumers and businesses are spending. But there are significant differences from neighborhood to neighborhood and even from business to business.
Consumer spending is rising, but unevenly.
At a street market in Suzhou, a butcher named Jiang Yongming stood behind a table covered with slabs of raw pork and complained about the austerity of the people in his neighborhood. He said that people who buy meat ask him to cut a large filet into two or three pieces and then only buy one.
Liu Zhongyou, a seller of catfish and oysters at a street market in Suzhou, had a very different experience. It lost all of its sales for a month last year when nearby restaurants were closed due to pandemic restrictions, but now the same restaurants have resumed placing large orders.
“We were losing money during the pandemic — we didn’t have customers,” Mr. Liu said. “It’s good now.”
The contrasting experiences of two smaller companies in the same market point to China’s recovery – strengthening but unevenly.
China’s retail sales rose just 3.5 percent in January and February compared to the same months last year. So the big increase in March represented the first sign of a strong recovery. But the jump compared to the actual decline in March 2022, when Covid cases were rising, triggering Shanghai’s two-month lockdown.
And some sectors never recovered from the pandemic. A third of the cinemas are finished. Box office revenue fell 55 percent in March compared with the same month four years ago, according to Maoyan Entertainment, an online ticket company in Beijing that tracks the industry.
Even as the Chinese economy starts to pick up again, there is little sign of inflation. Unlike the West, China has refrained from sending pandemic checks and vouchers to households. So the ability of the people is limited to raise the prices of commodities. Consumer prices were only 0.7 percent higher in March than a year ago, and the prices that producers charge their customers for industrial goods have fallen.
“Insufficient domestic demand is still prominent, and the foundation for economic recovery is not yet solid,” said Fu Lingwei, an official with the bureau of statistics.
The incomes of millions of Chinese were severely reduced during the epidemic, and have remained vulnerable. The unemployment rate for people ages 16 to 24 rose in March to 19.6 percent from 18.1 percent in February, as many recent college graduates struggle to find white-collar jobs and dread working in factories. In a positive sign, unemployment among the 25-59-year-old population eased to 4.3 percent in March, from 4.8 percent in February.
Factories are catching up with orders.
Next to one of Suzhou’s famous canals lined with weeping willows is a tabletop electric motor repair shop. The store offers many small workshops nearby that make nails and screws for the city’s huge industrial companies.
The owner, who gave his last name, Guo, said some businesses like him have failed during the pandemic but survivors have returned. “It is basically much better than before, and those that have not closed have basically recovered,” Mr. Gu said.
Industrial production — output from factories, mines and power plants — rose 3.9 percent in March from a year ago, an improvement from 2.4 percent in January and February. But industrial growth was still weak by China’s standards. A sharp slowdown in the auto industry was one of the main culprits.
Auto sales fell 13.4 percent in the first quarter. At the end of December, China allowed subsidies for electric cars to end and reinstated sales tax on gasoline-powered cars that had been suspended.
Overall, exports are recovering and jumped 14.8 percent in March. Factories are catching up on backlogs built up during “zero Covid” lockdowns.
China builds railways, not apartments.
Investment in new residential buildings, roads, factories and other fixed assets has long been a mainstay of the Chinese economy. Investment in fixed assets is growing – 5.1 percent in the first quarter compared to last year. But the investment is not following the pattern Beijing welcomed.
Government spending on new railways, roads and other infrastructure rose 8.8 percent in the first quarter compared to a year ago. Manufacturing investment rose 7 percent.
Few sectors illustrate the challenges China still faces more than real estate.
After running out of cash over the past two years and defaulting on dozens of overseas bonds, housing developers have started very few new projects, even though prices are beginning to stabilize. Stock market investors remain wary: The share price of a large developer, Sunac China Holdings, plunged 59 percent last week when it resumed trading after being suspended for a year.
Even people who receive new apartments from developers are often reluctant to spend money on painting and furnishing. In a paint shop down the street from Mr. Guo’s electrical repair shop, the customers have disappeared.
“We don’t have a job now,” said the shopkeeper, who gave her last name, Lu. “Nobody comes.”
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