If January and February’s economic data is any guide, the first two months of China’s re-opening after more than two years of draconian Covid lockdowns have been, at best, an uneven experience.
Weak retail sales and production, on top of the poor performance of trade and a sharp slide in inflation – all paints a picture of an economy stumbling out of a cave and still to find its feet.
Investment did a little better but the standout was another slide in property investment in the two months. It did decline at a slower pace than at the end of 2022, but there is still no sign of a significant and lasting plateau forming.
If the pace of activity in future months is anything like what we saw in the first two months of the year then the modest GDP target for all of 2022 of “around 5%” could prove hard to reach, especially with the tight monetary policy conditions in major western economies, rising interest rates and slowing household consumption.
National Australia Bank economists said that “Despite the reopening (since China abandoned its zero-COVID policies in early December), there has not yet been a wave of “revenge spending”.
“Given the likely weakness in demand for China’s exports in 2023, authorities have identified consumption as the key driver of growth this year – yet the big driver in January and February was investment.”
China’s government and central bank seemed happy with the performance – two key policy interest rates were left steady in daily liquidity management measures on Wednesday hinting that the main lending rates will not change next Monday.
The National Bureau of Statistics (NBS) said retail sales for the first two months of the year rose by just 3.5% that only matched expectations, industrial production for the January-February period rose 2.4%, less than the 2.6% expected by the market
Most categories within retail sales rose, but big-ticket items of autos and home appliances saw sales decline. Online retail sales of physical goods rose by 5.3% for the first two months of the year from a year ago.
Fixed asset investment rose by 5.5%, topping expectations for 4.4% growth. But much of that came from state-owned enterprises and not the private sector.
But real estate investment fell by 5.7% in January and February from a year ago. That follows a 10% drop in real estate investment for all of 2022. Infrastructure and manufacturing investment rose at a slower pace in the first two months of the year than in 2022.
Unemployment in cities ticked up to 5.6% in February, 0.1 percentage points higher than in January, the statistics bureau said. The unemployment rate for young people aged 16 to 24 remained high at 18.1%, the official data showed.
The data releases combine January and February figures — as is the Chinese statistics bureau’s custom — to avoid distortions from the Lunar New Year. The holiday, the biggest of the year in China, marks a travel period of more than a month and can fall in either month depending on the year.
The figures mark the first full months since China ended its stringent Covid controls in early December.
“The external environment is even more complex, inadequate demand remains prominent and the foundation for economic recovery is not solid yet,” the NBS Bureau said in a release on Wednesday afternoon.
The bureau called for boosting market confidence and achieving “reasonable growth of quantity.”
That’s as good a summary of China’s re-opening experience as any you might read.
