China's Economy Faces Choppy Waters Despite Rosy Report

Chinese leader Xi Jinping applauds during the closing session of the Chinese People’s Political Consultative Conference at the Great Hall of the People in Beijing on March 10. China posted better-than-expected growth figures for Q1 2024, but the country’s property market crunch and deflationary pressures remain.

China’s economy grew faster than expected in the first quarter of 2024 but lost some of its steam last month, official data shows, and experts told Newsweek whether or not their success will last.

This has tempered optimism, leading some analysts to question whether the world’s second-largest economy can regain momentum and hit its annual target of around 5 percent annually amid lingering weaknesses.

According to the quarterly report published by China’s statistics bureau Tuesday, titled “National Economy Made a Good Start in the First Quarter,” the country’s GDP expanded by 5.3 percent year on year in the first quarter, besting its fourth-quarter figure by 0.1 and outperforming the 4.6 percent forecast from a Reuters survey of analysts.

Yet the economy continues to be dogged by a depressed housing market, government debt, deflationary pressures, and low consumer spending that persists more than a year after China dropped its strict pandemic-era lockdowns.

The new data showed industrial output increased by just 4.5 percent in March compared to 6.1 percent for the whole quarter and 7 percent for the January-February period.

Several key industries where China is a world leader saw explosive growth, however. Production of electric vehicle charging stations shot up by 41.7 percent, electrical components by 39.5 percent, and 3D printing devices by 40.6 percent.

Retail sales of consumer goods, an indicator of domestic demand, were up 4.7 percent since the first quarter of last year. Growth was more tenuous when looking at March alone, though, with total sales rising just 0.26 percent from February to hit 3.1 percent year over year (YOY).

Exports rebounded from last year to contribute to 0.8 percent of the growth seen in the first quarter, Zhao Tonglu, head of the National Bureau of Statistics Department of National Accounts wrote in an analysis of Tuesday’s report.

On a quarterly basis, the value of China’s exports grew by 4.9 percent over the same period last year. But they fell 3.8 percent in March.

Investment in infrastructure was up by 6.5 percent and in manufacturing by 9.9 percent.

The data underscored the ongoing real estate sector crisis that is having far-ranging consequences in China, where a majority of household wealth is tied up in property.

Total sales of new commercial buildings slipped by 27.6 percent since Q1 2023. Floor space of new commercial buildings sold was down 19.4 percent since Q1 2023, and investment in real estate development dropped by 9.5 percent YOY.

“Right now, the economy has livened up thanks to vigorous exports related to China’s industrial policy goals and infrastructure stimulus announced late in 2023, economist George Magnus, associate at the University of Oxford China Centre, told Newsweek.

But the forward momentum is unlikely to last, Magnus said. “March monthly data on the economy were much softer than the recently announced Q1 GDP data, deflation risk still stalks the economy, and the widely discussed need to strengthen consumption spending isn’t finding traction in action to bolster household incomes and spending.”

If the economy dips again over the summer, Magnus said he expects some kind of stimulus in the second half of the year, but he questions whether Beijing would move to shore up the household sector “other than cyclically, if at all.”

Chinese President Xi Jinping has been focused on stimulating infrastructure, and industries that are in line with his vision of “high-quality development.” He has so far resisted putting money in the pockets of consumers or the kind of massive government expenditures needed to bail out the real estate sector.

As China’s economic engines cool, there is a limit to the amount of stimulus the government can inject. Such measures could “buy time but possibly at significant cost to the economy,” Magnus said.

Last week, U.S. rating company Fitch revised its outlook for China’s sovereign credit from down to “negative” from “stable,” citing “wide fiscal deficits and rising government debt in recent years.”

Newsweek reached out China’s National Statistics Bureau with a written request for comment.

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