China's economy kicked off 2023 on a strong note, with consumers eagerly spending after three years of strict pandemic measures were lifted. The National Bureau of Statistics reported a 4.5% increase in GDP for the first quarter compared to the previous year, surpassing the 4% growth forecasted by a Reuters poll of economists.
Despite this positive start, private investment barely increased, and youth unemployment reached near-record levels, indicating lingering caution among private sector employers about future prospects. Consumption, however, saw a significant rebound, with retail sales soaring 10.6% in March from the previous year, marking the highest growth since June 2021. From January to March, retail sales rose 5.8%, driven largely by a boom in the catering service industry.
Louise Loo, China lead economist for Oxford Economics, noted that the combination of rising consumer confidence and the ongoing release of pent-up demand suggests the consumer-led recovery still has potential to grow.
Industrial production also showed a steady rise, increasing 3.9% in March compared to 2.4% in the January-February period. China typically combines data for these months to account for the Lunar New Year holiday's impact.
Last year, GDP grew by only 3%, falling short of the official target of around 5.5%, as stringent COVID-19 measures disrupted supply chains and dampened consumer spending. Following widespread protests and financial strains on local governments, the zero-COVID policy was abandoned in December. After a brief disruption due to a COVID surge, the economy began to recover.
Recently, an official measure of non-manufacturing activity reached its highest level in over a decade, indicating that the services sector is benefiting from increased consumer spending post-pandemic restrictions.
As the recovery progresses, investment banks and international organizations have raised their growth forecasts for China. The International Monetary Fund, in its World Economic Outlook, stated that China is "rebounding strongly" and projected GDP growth of 5.2% for this year and 5.1% for 2024.
However, some analysts suggest that the robust growth in the first quarter may have been influenced by economic activity delayed from the fourth quarter of 2022 due to pandemic restrictions. Raymond Yeung, chief economist for Greater China at ANZ Research, noted that if adjustments are made for this delay, first-quarter GDP growth might have been just 2.6%.
Supporting this view, key data released on Tuesday showed weak private investment. Fixed asset investment by the private sector rose only 0.6% from January to March, reflecting a lack of confidence among entrepreneurs, while state-led investment grew by 10%. This was even lower than the 0.8% growth recorded in the January-February period.
The Chinese government has taken unexpected steps to boost confidence among private entrepreneurs, but these efforts have sparked more anxiety than optimism. The crucial property sector remains in a slump, with property investment falling 5.8% in the first quarter and property sales by floor area dropping 1.8%.
Fu Linghui, a spokesman for the NBS, stated at a Beijing news conference that while the domestic economy is recovering well, the issue of insufficient demand remains evident. Prices for industrial products continue to fall, and businesses face significant profitability challenges.
Youth unemployment continued to rise, with the jobless rate for 16- to 24-year-olds reaching 19.6% in March, marking the second-highest level on record after the 19.9% seen in July 2022. This high unemployment rate among young people indicates "slack in the economy," according to Yeung.
He warned that with a new wave of graduates entering the job market by June, the unemployment situation could worsen if China's economic momentum slows. The education ministry has estimated that a record 11.6 million college graduates will be seeking employment this year.
At the National People's Congress meeting last month, the government set a cautious growth target for this year, aiming for around 5% GDP growth and the creation of 12 million jobs.