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Chinese GDP Gets an Unexpected Boost

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2023-04-18

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Thanks to a surge in household spending and exports, China’s gross domestic product grew at an annual rate of 4.5% in the March quarter - much faster than most forecasts and up from the 2.9% rate at the end of 2022.

Quarter on quarter growth was 2.2%, also stronger than expected.

The annual rate in the first quarter was up sharply from the 3% rate through 2022 but still short of the official target of ‘around 5%’ for 2023, or the IMF’s 5.2% forecast.

The stronger growth though saw analysts upgrade their forecasts for the year - notably the bullish National Australia Bank now sees annual GDP growth of 5.6%, up from the previous 5.4%.

Retail sales growth was at a near 2-year high in March, industrial output rose the most in 5 months, surveyed jobless rate fell to its lowest in 7 months but investment looked short of forecasts and the previous period.

China’s National Bureau of Statistics put the better than forecast performance down to the strong growth in retail sales, exports and infrastructure investment as well as a steadying in property prices which seem to have stopped the nasty slide seen in the final months of last year.

Retail sales jumped 10.6% in March, topping forecasts for growth of 7.4%. This was the strongest pace of growth in retail trade since the June quarter of 2021.

But analysts pointed to March, 2022 when Covid infections started forcing tougher lockdowns, especially in Shanghai (retail sales in March last year fell 1.4%). That made last month’s performance look better than it was.

Industrial output rose 3.9%, slightly just under the forecast 4% but was still weaker a year ago.

It was the fastest growth in industrial production since last October, with both manufacturing output and utilities quickening, following the lift of the zero-COVID policy, while mining activity eased.

For the first quarter of the year, industrial production grew by 3.0% from the same period in 2022. In 2022, industrial production advanced by 3.6%.

Exports from China unexpectedly rebounded in March, marking a surprise jump of 14.8% after a fall of 6.8% in the previous month. It also saw a trade surplus of $US88 billion in U.S. dollar terms, beating expectations for a surplus of $US39 billion.

Year-to-date fixed asset investment slowed to a 5.1% rate, compared to the 5.5% growth in 2022 and also below estimates for growth of 5.7%. The 5.1% was equal to the rate in December and the lowest for more than a year.

But when accounting for the fall in producer prices in the month of 1.2%, National Australia Bank economists reckon real investment grew 5.2%, up from 4.4% in January and February.

One small factoid that illustrates the gathering strength of the re-opening was the sharp rise in Chinese air travel. Tuesday’s data showed a 68.9% surge in first quarter passenger numbers from the Covid suppressed first quarter of 2022.

The weak quarter a year ago makes all the comparatives look a lot stronger but it is clear that when the International Energy Agency pointed out last week that Chinese demand would boost global consumption of oil products like jet fuel and kerosene this year, it wasn’t far wrong.

China's civil aviation industry handled 129 million trips in the first three months of the year, around 80% of the traffic recorded in the same period in pre-pandemic 2019 and 51% above the final quarter of 2022.

Domestic airline routes saw 126 million trips in the first quarter, a 66.6% growth from a year ago and 88.6% of the traffic level seen in the same quarter in 2019. Passenger numbers were up 68.9%, pointing to a rise in passenger numbers slightly faster than the rise in capacity.

International routes saw 2.24 million trips in the first three months, an eight-fold surge from a year earlier, but only 12.4% of the level recorded in the first quarter of 2019.  That’s because the international re-opening has been much slower than domestic.

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But real estate was again the big negative and for all the talk about the rebound in China’s most important domestic sector and growth driver, it remains weak and bumping along the bottom

Tuesday’s data confirmed this with investment in real estate down 5.8% in March. That was after weekend data showing a slowing in the rate of decline in new house prices in China’s 70 major cities - in March prices fell 0.8% compared with the 1.2% slide in January and February.

This was the 11th straight monthly fall in new home prices but the softest pace since June 2022, amid efforts from Beijing since last year to speed up policy measures to support a recovery of the ailing property sector.

The 5.8% drop was slightly larger than the 5.7% in January and February.

Property sales by floor area declined 1.8% year-on-year in the first quarter of the year, against the 3.6% fall seen in the first two months, according to the National Bureau of Statistics.

New construction starts measured by floor area fell 19.2% in January-March from a year earlier, after a 9.4% drop in the first two months.

Funds raised by China's property developers slumped 9.0% year-on-year in the first three months, after a 15.2% slump in January-February

China's surveyed urban unemployment rate declined to a seven-month low of 5.3% in March 2023 from February’s three-month high of 5.7%.

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And finally, just as iron ore imported surged to a record in the three months to March, China's crude steel output in March rose 6.9% from a year earlier.

China’s National Bureau of Statistics reported Tuesday that crude steel production hit 95.73 million tonnes last month, the highest since June last year and up from 88.3 million tonnes in March 2022.

Production in March 2022 was capped by stringent COVID-19 restrictions and environmental controls. Beijing abruptly dropped the world's toughest COVID-19 curbs in December after outbreaks of civil unrest in November.

Output of the metal over the first quarter of 2023 was 261.56 million tonnes, up 6.1% on year and the highest for the three-month period since 2021.

The average daily steel output in March stood at 2.91 million tonnes, the highest monthly average since June 2022, according to Reuters. That was up from 2.85 million tonnes for the same period in 2022, and was also higher than 2.86 million tonnes over January-February.

Chinese buyers lifted iron ore imports by 9.8% in the March quarter to 294.33 million tonnes from the same period of 2022. It was the highest first quarter import total ever.

Imports in March alone topped 100 million tonnes.

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