China recently released economic data for the first two months of the year, showcasing positive results that exceeded analysts’ expectations. Retail sales saw a 5.5% increase, surpassing the forecasted 5.2%, while industrial production rose by a notable 7%, compared to the estimated 5% growth. Fixed asset investment also performed well, seeing a rise of 4.2%, which was higher than the expected 3.2%. The unemployment rate for cities was reported at 5.3% in February, and online retail sales of physical goods increased by 14.4% from the previous year during the same period. However, investment into real estate experienced a decline of 9% in the first two months of the year.
The combination of economic figures for January and February in China aims to smoothen out variations caused by the Lunar New Year, which can fall in either month depending on the calendar year. The most significant national holiday in China, the Lunar New Year results in the closure of factories and businesses for at least a week. This year, the number of domestic tourist trips and revenue during the holiday showed growth compared to both last year and pre-pandemic figures from 2019. Despite this positive trend, Nomura’s Chief China Economist Ting Lu pointed out that the average tourism spending per trip was still 9.5% lower than pre-pandemic levels in 2019.
Retail sales did not rebound as strongly from the pandemic as expected, as consumers remain uncertain about their future income. New loans in February fell short of expectations, even after adjusting for seasonality, according to Goldman Sachs analysts. The persistent weakness in property transactions and low consumer sentiment may continue to impact household borrowing, leading to a call for more monetary policy easing.
Real estate, a significant part of household assets in China, has faced challenges in recent years following Beijing’s crackdown on developers’ heavy reliance on debt for growth. The average property price for 70 major Chinese cities exhibited a 4.5% decline in February, steeper than the previous month’s drop of 3.5%. Transaction volumes for new homes in 30 cities also declined by 53.2% year-on-year in early March, according to Goldman Sachs’ analysis. Despite these struggles, Chinese authorities did not introduce significant new support for the real estate sector during the annual parliamentary meeting held last week. Instead, the focus was on developing manufacturing and technological capabilities.
Data released earlier this month revealed that China’s exports for January and February saw a growth of 7.1% in U.S. dollar terms, outperforming expectations for a 1.9% increase. Imports also climbed by 3.5% during the same period, exceeding the forecasted 1.5% growth. The positive performance in exports and imports indicates resilience in China’s trade sector, despite the challenges faced by other segments of the economy.
China’s economic data for the first two months of the year paints a mixed picture of the country’s economic landscape. While certain sectors like retail sales and industrial production have shown promising growth, challenges persist in areas such as the real estate sector and consumer sentiment. The focus on developing manufacturing and technological capabilities highlights China’s strategic priorities for the future, as the country navigates through both domestic and global economic uncertainties.
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