Although Chinese consumers are wary of big purchases such as cars or apartments, they are spending money again. Many factories are still operating below capacity, but exports have picked up. Even as new home construction slows, investment in infrastructure and manufacturing is robust.
Economic growth in China recovered faster than expected during the first three months of the year after the government abruptly lifted strict “zero Covid” measures in early December.
China’s economy grew 4.5 percent from January to March compared to the same months last year, the country’s National Bureau of Statistics said on Tuesday. Retail sales, a barometer of consumers’ willingness to spend, rose 10.6 percent in March from a year earlier, despite a slump in auto sales.
The stakes for the rest of the world are high. China has been the biggest driver of global growth for the past two decades. Despite simmering tensions with the United States and growing disagreements with Europe, China remains heavily dependent on both economies. The International Monetary Fund warned last week that the world faces a growing risk of a painful slowdown this year as central bankers in the West raise interest rates and banks stumble.
Tuesday’s gross domestic product 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 Loo, an economist specializing in China in Oxford Economics’ Singapore office. “A very decent annual growth rate of 4.5 percent at this early stage of the reopening also gives the authorities scope to provide support to weaker segments of the economy where necessary.”
China has taken measures to stimulate growth. The government spends money on high-speed lines, highways, bridges and other infrastructure, money that boosts jobs and consumers. The central bank, the People’s Bank of China, told commercial banks last month that they could hold slightly smaller reserves for potential losses, allowing them to borrow more.
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The stock and bond market downturn this year has been painful and it remains difficult to predict what the future holds.
Growth in the early months of this year was a significant improvement from the 2.9 percent pace seen in the last quarter of last year, when a wave of disease swept through the country in December after pandemic controls were lifted.
So far this year, spending has been strongest for services such as travel and meals. Major hotels in Beijing and Shanghai that shut down elevators last year and often had a single dinner in 200-seat restaurants are now lined up with people waiting for a table at breakfast. Most of that activity was driven by Chinese consumers as flights to the country got off to a slow start.
On the other hand, a slow-motion housing crash continues to put the brakes on the economy. The construction of new homes, offices and shops shrank by 5.8 percent in the first quarter compared to the same period last year.
The local economy in Suzhou, a city on the Yangtze River near Shanghai, shows many of the national trends. Consumers and businesses are spending money again. But there are significant differences from neighborhood to neighborhood and even company to company.
Consumer spending is picking up, but unevenly.
At a street market in Suzhou, a butcher named Jiang Yongming stood behind a table covered with slabs of raw pork and lamented the continued austerity of his neighborhood’s residents. People who buy meat ask him to chop a large fillet into two or three pieces and then buy just one piece, he said.
Liu Zhongyou, a vendor of catfish and clams at a street market in Suzhou, had a very different experience. He lost all of his sales for a month last year when nearby restaurants closed due to pandemic restrictions, but now the same eateries have started placing large orders again.
“We lost money during the epidemic – we had no customers,” said Mr. Liu. “It’s okay now.”
The differing experiences of two small companies in the same market point to China’s recovery – strong but uneven.
Retail sales in China were up just 3.5 percent in January and February compared to the same months last year. So the double-digit increase in March was the first sign of a robust recovery. But the big jump is compared to an actual drop in March 2022, when Covid cases increased, leading to the start of Shanghai’s two-month lockdown.
And some sectors have not yet recovered from the pandemic at all. Cinemas in particular have been hit hard: a third of them went under. Box office revenue was down 55 percent last month compared to the same month four years ago, according to Maoyan Entertainment, a Beijing-based online ticketing company that tracks the wider industry.
The incomes of millions of Chinese people were under severe pressure during the pandemic and remain weak. Unemployment among 16- to 24-year-olds actually jumped to 19.6 percent in March from 18.1 percent in February, as many recent graduates struggle to find jobs and are wary of working in factories. to work. Many households hold back on spending until they rebuild their savings.
Factories are taking orders.
Next to one of Suzhou’s iconic canals, lined with weeping willows, is a table electric motor repair shop. The store has long supplied the many small workshops in the area that make nails and screws for the city’s huge industrial sector.
The shop owner, who goes by his family name Guo, said some workshops had failed during the pandemic, but survivors were back to work. “It’s actually much better than before, and those that haven’t closed have basically recovered,” Mr Guo said.
Industrial production — production from factories, mines and power plants — rose 3.9 percent in March year-on-year, an improvement from 2.4 percent in January and February. But industrial growth in March was still meager by Chinese standards. A sharp slowdown in the auto industry was one of the main culprits.
Car sales fell by 13.4 percent in the first quarter. At the end of December, China let national subsidies for electric cars expire and reintroduced a sales tax on gasoline cars that had been suspended during the country’s “zero Covid” measures.
All in all, exports are recovering, including an increase of 14.8 percent in March compared to a year earlier. Factories are catching up on a backlog of orders incurred during the “zero Covid” lockdowns.
China builds railway lines, not apartments.
Investment in new apartment buildings, roads, factories and other so-called fixed assets has long been a mainstay of China’s economy. Total fixed capital formation is increasing, including a 5.1 percent increase in the first quarter compared to the same period last year. But investment is not following the pattern that Beijing welcomes.
Government spending on new rail lines, roads and other infrastructure rose 8.8 percent in the first quarter compared to the same months last year, according to the National Bureau of Statistics. Production investment increased by 7 percent.
But after running out of money for the past two years and failing to pay dozens of foreign bonds, residential real estate developers are launching very few new housing projects, even though house prices are starting to stabilize.
They are focused on finishing the apartment buildings they have already started, many of which have been delayed. Stock market investors remain wary of the sector, with a major developer, Sunac China Holdings, seeing its share price drop 59 percent last week when it resumed trading after being suspended for a year.
Even people who take delivery of new apartments from developers are often reluctant to spend money on painting and furnishings. At a paint shop down the street from Mr. Guo’s electrical repair shop, the customers have disappeared.
“We have no business now,” said the store owner, who gave her surname Lu. “No one is coming.”
Li you contributed research.
