China is reporting mixed economic news following last week’s political gathering in which President Xi Jinping has tightened his grip on nearly all aspects of the economy and society. But factory output, long a driver of China’s rapid economic growth, has only been rising — throwing cold water on forecasts of a growing boom for the world’s second-largest economy. Recent figures for other sectors, such as real estate and unemployment, paint a similarly murky picture. “‘The numbers aren’t great, but I don’t think anyone expected them to be great given how China was hit by the spread of Covid in the first two months. They’re definitely moving in the right direction.'” — Michael Pettis, Economist on China Retail sales — a proxy for consumption — rose 3.5% in January and February compared with the same period last year, according to data released Wednesday by the National Bureau of Statistics. Although just matching forecasts, it was sharper than the big decline seen in the final months of 2022. There was improvement. Driving domestic activity were pharmaceutical sales, which grew 19.3%, and the food-service and catering sector, which expanded 9.2%. .Consumption is a particularly important area for China’s economy. The rapid economic growth of the past 30 years has replaced domestic sales. Primarily dependent on the industrial sector and exports, this has created an unbalanced economy that policymakers have struggled to address. is, although we all hope (and expect) to see faster growth over the next few months,” said economist Michael Pettis. There are also businessmen. “Our local crowd has been coming back for some time now,” said Liu Jianlin, owner of a hot-pot restaurant in the western city of Chengdu. “But now we are seeing larger gatherings, more group dinners and traffic from other cities and provinces.” Yet the heart of the economy, industrial production, is in the middle. Although the 2.4% growth so far this year is up from 1.3% at the end of last year, it is below economists’ expectations. Upstream sectors such as crude oil and steel production outperformed, both growing by more than 3%. But more consumer-facing industries struggled, with automobile output falling 14% and sales of passenger vehicles down 20%. “‘All these data suggest that the economy is recovering better than expected.’ “- Hong Hao, Chief Economist, Grow Investment Group “The numbers aren’t great, but I don’t think anyone expected them to be great given how China was hit by the Covid outbreak in the first two months,” Pettis said. MarketWatch. “They are definitely moving in the right direction.” “All these data indicate that the economy is doing better than expected,” agreed Hong Hao, chief economist at Grow Investment Group. The data comes just days after China wrapped up its most important political summit of the year, in which Xi began his controversial third term in office by moving loyalists into key positions. At the top is his new No. 2, incoming Premier Li Qiang, who told reporters on Monday that his focus is on “high-quality development” and improving citizens’ quality of life by lowering prices and stabilizing employment. See: Chinese President Xi will visit Moscow to show support for Putin See also: The White House called on China’s Xi to hold talks with Ukraine’s Zelensky even as the job market showed continued weakness in Wednesday’s data, along with the property sector. The unemployment rate rose to 5.6% from 5.5% – worse than expected and slightly above the government’s high-range target. The slowdown in the real-estate market also continued, with property investment falling 5.7% so far this year, according to Wednesday’s figures. Weakness in employment and property may bode poorly for a sustained recovery in consumer activity, analysts said, a key suspect behind why household wealth fell last year for the first time in at least two decades. “This suggests that once the initial reopening rebounds, we should not expect further increases in consumer spending,” Julian Evans-Pritchard, an analyst at Capital Economics, wrote in a recent note to investors. Meanwhile, Chinese stocks may be coming to the end of their five-month rally. The benchmark Shanghai Composite Index SHCOMP and Hong Kong’s Hang Seng Index HSI are both down following double-digit gains this month after China ended its strict “zero-COVID” restrictions late last year. From the archives (January 2023): With Beijing putting zero-COVID restrictions in the rearview mirror and the Chinese cutting off overseas flights as the Chinese New Year approaches, “the market has hit a wall after a strong rally from the bottom in late October 2022,” Hong of Growth Investments told MarketWatch. “A US banking failure is likely to have an emotional overhang and risk contagion. We are waiting on the sidelines, and seeing if the Hang Seng can hold the 19,000 level before returning.” Tanner Brown covers China for MarketWatch and Barron’s.
