China’s first-quarter growth shows it is far from a spent economic force.
By guest author Nathaniel Taplin from the Wall Street Journal.
April 18, 2023
n late 2020 and early 2021, the U.S. was being pummeled by Covid-19, by its scattershot response to the pandemic and by toxic politics. Many observers concluded the nation had entered terminal economic and political decline. But a year later, having suffered through Covid-19 and the associated political shocks, it was growing strongly again and had reasserted itself on the world stage.
Something similar is happening in China now.
China’s 4.5% first-quarter growth figure surprised many economists, who had expected somewhere in the neighbourhood of 4 %, particularly given ongoing drags from China’s housing-market crash and a conservative monetary stance. To be sure, there are important differences: Chinese households never received big government checks and so, while the current consumption rebound is impressive, it likely won’t have quite the staying power that the U.S.’s did. Significant structural damage to the nation’s housing market and to its high-tech sector from the policy missteps of the past two years will persist, and demographics are a drag.
But none of that means that China cannot experience a period of above-trend rebound growth now that it has passed through the wringer. Given the strong momentum the economy has now and given the low-base effect next quarter from last year’s Shanghai lockdown, China’s second-quarter growth figure will likely be significantly stronger.
The consumption figures were the most impressive, as expected: Retail sales rose 10.6 % year over year, up from just 3.5 % in January and February.
But the long-suffering Chinese housing market is also in better shape than it appears. Although investment weakened again marginally in March, which may partly explain why coal and steel prices have lagged of late, residential floor space sold rose year over year for the first time since June 2021. And housing floor space completed jumped 35 %, up from a 10 % gain in January and February and double-digit declines as recently as November. Housing starts and investment are still lagging but the backlog of uncompleted, presold apartments—the key factor weighing on the market—appears to finally be being whittled down.
Given that fact, and the strong rebound in domestic consumption and travel, it is no surprise to see oil demand jumping back as well. China’s apparent petroleum demand—refinery runs plus net oil product imports—rose nearly 10 % year over year in March according to figures from data provider CEIC. That was up from a 3.9 % fall in December 2022, confirming other hints earlier this year that oil demand was rebounding quicker than expected. By the second half of the year, China’s property rebound and oil demand are likely to start having a much more noticeable impact on global commodity prices—although a construction frenzy on the scale of previous stimulus episodes remains unlikely.
One area where optimism may be slightly misplaced is trade. China’s March exports surprised strongly on the upside, partly on the strength of burgeoning trade with Russia, but the official manufacturing purchasing-managers index showed growth in new export orders slowing slightly. Output of key export-related manufactured goods like smartphones and computers also remained weak in March: Production fell 6.7 % and 21.6 %, respectively, year over year.
China still has a significant economic hole to climb out of, but these latest figures show it is back in business. The policy mistakes of the Covid-19 era have done some long-term damage to China’s prospects. But they won’t be enough to remove the country as a formidable global economic force—even though many in Washington might wish that to be the case.
China’s economy rebounded in the first quarter. |
The GDP was 4.5 % larger than a year earlier, Beijing said, beating the 4 % expected by economists polled by The Wall Street Journal and broadly on track to meet the government’s full-year goal of about 5 %. Growth in 2022 clocked in at just 3 %. Chinese consumers played a large role in the first-quarter bounce, shopping, eating out and traveling again after almost three years of stringent Covid restrictions. Retail sales in March were up 10.6 % from a year earlier, handily topping expectations.
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