China's economy began 2023 on a strong note, with a 4.5% increase in GDP during the first quarter compared to the previous year, as reported by the National Bureau of Statistics. This growth surpassed the 4% forecast by economists in a Reuters survey. Despite this positive start, private investment showed minimal growth, and youth unemployment rose to near-record levels, reflecting ongoing concerns among private sector employers about future prospects.
Consumer spending led the recovery, with retail sales surging by 10.6% in March, marking the highest growth since June 2021. From January to March, retail sales increased by 5.8%, driven largely by the catering sector. Louise Loo, an economist at Oxford Economics, noted that rising consumer confidence and the release of pent-up demand suggest the recovery still has momentum.
Industrial production also improved, rising 3.9% in March compared to 2.4% in the January-February period. China typically combines data for these months due to the Lunar New Year holiday's impact.
Last year, China's GDP grew by just 3%, falling short of the 5.5% target due to strict COVID-19 measures that disrupted supply chains and consumer spending. After widespread protests and financial strains on local governments, China abandoned its zero-COVID policy in December. Following a brief disruption from a COVID surge, the economy began to recover.
Recently, non-manufacturing activity reached its highest level in over a decade, indicating a boost in the services sector from increased consumer spending post-pandemic. As recovery progresses, investment banks and global organizations have raised their growth forecasts for China. The International Monetary Fund's recent outlook predicts China's GDP will grow by 5.2% in 2023 and 5.1% in 2024.
However, some analysts argue that the first quarter's strong growth was due to economic activity being delayed from the fourth quarter of 2022. Raymond Yeung, ANZ Research's chief economist for Greater China, suggested that if adjustments are made for this delay, first-quarter growth might have been just 2.6%.
Supporting this view, private investment remained weak, with fixed asset investment by the private sector rising only 0.6% from January to March. This indicates a lack of confidence among entrepreneurs, despite state-led investment growing by 10%. The government has taken unusual steps to boost confidence among private entrepreneurs, but these efforts have caused more concern than optimism.
The property sector also faces challenges, with investment down 5.8% in the first quarter and property sales by floor area falling 1.8%. Fu Linghui, an NBS spokesperson, highlighted ongoing issues like insufficient demand and falling industrial product prices, which are affecting business profitability.
Youth unemployment continued to rise, with the jobless rate for 16- to 24-year-olds reaching 19.6% in March, the second-highest on record. Raymond Yeung pointed out that this high unemployment rate indicates economic slack, and with new graduates entering the job market in June, the situation could worsen if economic growth slows.
China's education ministry has projected a record 11.6 million college graduates will seek employment this year. At the National People's Congress meeting last month, the government set a cautious growth target of around 5% and aimed to create 12 million jobs.