In the first quarter of 2023, China's economy saw a robust start, with a growth of 4.5% year on year, exceeding the 4% prediction made by economists surveyed by Reuters. This positive start is largely due to consumers indulging in spending after three years of stringent pandemic restrictions.
However, the private investment sector saw little to no movement, and the country witnessed a significant surge in youth unemployment. This suggests that private sector employers are still skeptical about long-term prospects.
Consumer spending saw a remarkable rebound, with retail sales soaring by 10.6% in March compared to the same period last year. This is the highest growth rate since June 2021. From January to March, retail sales rose by 5.8%, primarily driven by increased revenue from the catering service industry.
Louise Loo, China's lead economist at Oxford Economics, stated that the continued rise in consumer confidence and the release of pent-up demand indicate that the consumer-led recovery is far from over.
Additionally, industrial production saw a steady climb, increasing by 3.9% in March, as compared to 2.4% during the January-February period. In 2022, the GDP only rose by 3%, significantly falling short of the projected growth target of 5.5%, due to the impact of the country's approach to containing the coronavirus.
Following the scrapping of the zero-Covid policy in December, the economy is showing signs of recovery after a brief period of disruption due to Covid resurgence. An official non-manufacturing activity index soared to its highest level in over a decade, signifying the beneficial effects of a consumer spending surge on the crucial services sector.
International organizations and investment banks are upgrading China's growth forecasts for this year. The International Monetary Fund, in its World Economic Outlook, predicted that China's GDP would increase by 5.2% this year and 5.1% in 2024.
However, some analysts suggest that the strong Q1 growth is a result of economic activity being pushed back from Q4 of 2022, which was impacted by Covid-19 restrictions and a chaotic reopening.
Raymond Yeung, chief economist for Greater China at ANZ Research, warned that China's economy could be deflationary. Adjusting for the impact of delayed economic activities, Yeung suggested that the Q1 GDP growth could be only 2.6%.
The state of private investment was particularly weak, with fixed asset investment by the private sector only increasing by 0.6% from January to March. Meanwhile, investment driven by the state grew by 10%.
The property industry, a critical economic sector, is also suffering from a significant downturn. Investment in real estate fell by 5.8% in Q1, with property sales by floor area also decreasing by 1.8%.
Unemployment among the youth continued to rise, with the unemployment rate for 16- to 24-year-olds reaching 19.6% in March, marking the second highest on record.
China's education ministry estimates that a record 11.6 million college graduates will be job hunting this year. A sluggish economy could exacerbate the jobless condition.
Last month, the Chinese government set a cautious growth plan for this year, aiming for a GDP target of around 5% and a job creation target of 12 million at the National People’s Congress.