China is reporting mixed economic news following last week’s political gathering that saw President Xi Jinping strengthen his grip on nearly all facets of the economy and society.
Consumer activity, the leading economic issue discussed at the annual meeting of the country’s legislature, is humming along so far this year, according to new government data.
But factory output, long the driver of China’s rapid economic growth, is merely inching along — spraying cold water on increasingly bullish forecasts for the world’s second-largest economy.
The latest numbers for other areas, such as real estate and unemployment, paint an equally muddy picture.
“ ‘The numbers aren’t great, but I don’t think anyone expected them to be great given how China was afflicted by the spread of COVID in the first two months. They are definitely moving in the right direction.’”
— Michael Pettis, economist
China’s retail sales — a proxy for consumption — grew 3.5% in January and February as compared with the same period last year, according to data released Wednesday by the National Bureau of Statistics.
While only matching forecasts, that was nevertheless a sharp improvement from the big declines seen in the final months of 2022.
Driving the domestic activity were sales of medicine, which grew 19.3%, and the food-service and catering sector, which expanded 9.2%.
Consumption remains an area of particular importance for China’s economy. The last 30 years of rapid economic growth have relied mainly on the industrial sector and exports, rather than domestic sales, creating an imbalanced economy that policy makers have struggled to remedy.
The rebound in retail sales are “a welcome respite from declines at the end of last year, although we are all hoping (and expecting) to see much faster increases in the next few months,” said economist Michael Pettis.
So are businesspeople. “Our local crowd has been back for some time now,” said Liu Jianlin, owner of a hot-pot restaurant in the western city of Chengdu. “But now we’re seeing bigger gatherings, more group dinners, and traffic from other cities and provinces.”
Yet the heart of the economy, industrial output, underwhelmed. Though the 2.4% growth so far this year is above the 1.3% at the close of last year, it fell short of economists’ expectations.
Upstream sectors outperformed, such as the production of crude oil and steel, which both rose more than 3%. But more consumer-facing industries struggled, with automobile output falling a staggering 14% and sales of passenger vehicles tumbling 20%.
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