China's retail sales and factory output in the January–February period exceeded predictions, signaling a strong start to 2024 and providing some respite to authorities even though the property sector's crisis continues to weigh on the economy and confidence.
The results released on Monday add to previous consumer inflation and exports figures that were stronger than anticipated, giving Beijing an early boost in its prospects of meeting the ambitious 5.0% GDP growth objective for this year.
Around the beginning of the year, China's activity data started to stabilize. However, Oxford Economics' China economist Louise Loo said that there are still grounds to believe that a portion of the strength may be one-off.
According to figures issued by the National Bureau of Statistics (NBS) on Monday, industrial output increased by 7.0% in the first two months of the year. This growth was faster than the 6.8% observed in December and exceeded predictions of a 5.0% gain in a poll of analysts. In addition, it represented the fastest growth in nearly two years.
Retail sales, a measure of consumption, were up 5.5%, slowing from a 7.4% growth in December but exceeding the projected 5.2% gain.
Travel returned for the eight-day Lunar New Year vacation in February, bolstering the travel and hospitality industries' earnings. As a result, the throughput of oil refineries increased by 3% to fulfill the high demand for transportation fuels.
To reduce distortions brought about by the Lunar New Year's fluctuating date, the NBS releases aggregated data on retail sales and industrial output for the months of January and February.
The better-than-expected news brought relief to investors, as Chinese blue chips gained 0.4% and Asian shares firmed.
Pains in property
A long crisis in the real estate industry, one of the primary economic pillars, continues to be a source of great anxiety for investors, consumers, and policymakers.
On that front, Monday's figures provided little comfort; while decreases in real estate investment narrowed in January and February, they were still well short of stabilizing.
The low demand demonstrated the sector's fragility. Floor area-based property sales saw a 20.5% decline in January and February of the prior year, compared to a 23.0% decline in December last year.
The first quarter had a significant sectoral difference, but Goldman Sachs economists indicated that China's sequential growth pace remained strong.
More relaxation of policy is still required, though, particularly on the demand side, in order to meet the ambitious growth objective of "around 5%" this year.
On the other hand, fixed asset investment grew 4.2% year over year in the first two months of 2024, outpacing forecast growth of 3.2%. The entire year 2023 saw 3.0% growth.
Importantly, private investment increased by 0.4% in the first two months, which reversed a 0.4% decrease for the entire year of 2023.
Structural challenges
Another sector that authorities and investors were keeping a careful eye on, the job market, had mixed results after declining precipitously during the COVID years.
An NBS spokesman, Liu Aihua, attributed the increase in the national survey-based unemployment rate from 5.2% in January to 5.3% in February to seasonal factors related to the Lunar New Year.
Earlier this month, Premier Li Qiang made a commitment to change the nation's economic model and reduce risks associated with local government debt and the real estate industry at the annual parliamentary meeting.
Also, the nation's governor of the central bank, Pan Gongsheng, stated earlier this month that banks' reserve ratio requirements (RRR) could still be lowered. This is in addition to the 50 basis point reduction that was announced in January, the largest reduction in the previous two years.
Expectations of global monetary easing may also provide a bit of relief to China's aspirations to fortify its extensive manufacturing sector, even though the near-term outlook for the economies of many important developed countries looks dire. Japan and the euro zone have seen very little growth, while Britain entered a recession in the latter half of last year.
Policymakers have promised to introduce more measures to help stabilize growth after the relatively modest impact of the measures taken since June. However, analysts warn that Beijing's fiscal capacity is currently severely constrained, and they point out that Li's speech at the annual parliamentary meeting did not win over investors.
A number of economists warn that China could flirt with stagnation akin to that of Japan later this decade unless policymakers take action to realign the economy toward family consumption and market-allocation of resources.