China experienced a robust economic start in 2023, driven by a surge in consumer spending as pandemic restrictions were lifted after three years. The National Bureau of Statistics reported a 4.5% growth in the gross domestic product in Q1 2023 compared to the previous year, surpassing the estimated 4% growth predicted by a Reuters poll. However, stagnant private investment and rising youth unemployment suggest that private sector employers remain cautious about long-term prospects.
Retail sales saw a significant rebound, with a 10.6% increase in March year-on-year, the highest growth since June 2021. From January to March, retail sales experienced a 5.8% growth, primarily due to a boost in catering service industry revenues.
According to Louise Loo, China lead economist for Oxford Economics, the steady rise in consumer confidence and the ongoing release of pent-up demand imply that the consumer-led recovery still has potential.
Industrial production also demonstrated a stable rise, with a 3.9% increase in March compared to 2.4% in the January-to-February period.
In 2022, China's GDP only grew by 3%, significantly missing the official target of around 5.5%. Strict measures to combat COVID-19 disrupted supply chains and consumer spending. However, after abandoning the zero-COVID policy in December and a brief period of disruption, the economy began to recover.
Non-manufacturing activity in the previous month reached its highest level in over a decade, indicating a revival in consumer spending and benefiting the crucial services sector.
International organizations and investment banks have updated their growth forecasts for China. The International Monetary Fund predicted in its World Economic Outlook that China's GDP would grow by 5.2% in 2023 and 5.1% in 2024.
Despite the promising first-quarter growth, some analysts argue that it is a result of delayed economic activity from Q4 2022. Raymond Yeung, chief economist for Greater China at ANZ Research, believes China's economy is deflationary and suggests that adjusted Q1 GDP growth could have been only 2.6%.
Weak private investment supports this perspective, with a meager 0.6% increase in fixed asset investment by the private sector from January to March. State-led investment, on the other hand, rose by 10%.
The property industry is also struggling, with a 5.8% decline in investment and a 1.8% decrease in property sales by floor area in Q1.
Youth unemployment continued to rise, reaching 19.6% in March, the second-highest rate on record. This increase indicates economic slack and could worsen as new graduates enter the job market.
China's government set cautious growth plans during the National People's Congress last month, with a GDP target of around 5% and a goal to create 12 million jobs.
