China’s economy rebounds more than expected after Covid reopening

China’s gross domestic product expanded 4.5 per cent year on year in the first quarter, as strong growth in exports and infrastructure investment as well as a rebound in retail consumption and property prices drove a recovery in the world’s second-largest economy.

The official figure, which exceeded analyst expectations of a 4 per cent rise, followed efforts by Chinese leader Xi Jinping’s government to restore business confidence damaged by pandemic controls last year and abrupt policy changes.

The January-March growth rate was still short of the government’s full-year target of 5 per cent, held back by a nationwide Covid-19 outbreak at the start of this year, but economists expect it to pick up pace as the year progresses.

Xi, who formally embarked on an unprecedented third term as China’s president last month, is keen to revive economic growth. Gross domestic product expanded just 3 per cent last year, missing the official target of 5.5 per cent which was already the lowest in decades.

“Definitely, the recovery’s on track,” said Tao Wang, UBS chief China economist. “The momentum at the beginning of the year was stronger than expected.”

The Hang Seng China Enterprises index in Hong Kong rose as much as 0.45 per cent after Tuesday’s data release but remained down 0.8 per cent for the day. The benchmark CSI 300 index of Shanghai- and Shenzhen-listed stocks was up 0.06 per cent.

“The national economy showed a steady recovery and made a good start,” China’s National Bureau of Statistics said in a statement. But the agency cautioned the situation was “complex and volatile, inadequate domestic demand remains prominent and the foundation for economic recovery is not solid yet”.

Premier Li Qiang, Xi’s new number two, signalled at this year’s meeting of China’s rubber-stamp parliament that the government would ease a crackdown on business that has wiped billions of dollars from property developers and internet platforms.

China abandoned zero-Covid controls in December amid popular opposition to the mass testing and rolling lockdowns that paralysed cities across the country for most of the year.

The relaxation of restrictions unleashed pent-up demand in the retail sector, where sales rose 5.8 per cent year on year in the first quarter and 10.6 per cent in March. A Bloomberg survey of analysts had forecast a rise of 7.5 per cent for March. The base of comparison with last year was low, however, given that Shanghai started a months-long lockdown in March 2022.

Manufacturing investment rose 7 per cent year on year, and industrial output gained 3 per cent in the first quarter. Exports showed strong growth, up 8.4 per cent in the first quarter, and state-led infrastructure investment climbed 8.8 per cent, while overall fixed asset investment rose 5.1 per cent. Private investment was weak, up just 0.6 per cent, suggesting a decline in March.

The property sector’s woes continued, with real estate investment falling 5.8 per cent and home sales by area declining 1.8 per cent. New housing starts also continued to tumble, plunging 19.2 per cent year on year in the first quarter.

But sales by value were up 4.1 per cent, pointing to a nascent recovery in home prices. In March, new home prices rose at their fastest pace in 21 months.

The jobless rate fell to 5.3 per cent in March from 5.6 per cent in February, but youth unemployment hit the second-highest rate on record, at 19.6 per cent.

Economists said momentum would pick up in the second quarter, helped by the low base effect, but warned that consumption and property might struggle to maintain strong growth, while exports could be threatened by weaker developed markets.

Xi’s administration also remained hamstrung by a lack of credibility after the crackdown on the private sector, experts said.

Keyu Jin, a professor at the London School of Economics, said the biggest obstacle was the gap in private sector demand, both in consumption and investment.

“It will take time for confidence to come back to the Chinese economy,” she said.

Additional reporting by Hudson Lockett in Hong Kong

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