China’s gross domestic product grew 5.3% in the first quarter from the same period in 2023, surpassing conservative forecasts of around 4.6% to 5%. However, it was only marginally ahead of the 5.2% rate recorded in the final quarter of 2023.
While some Western media and analysts emphasized the better-than-expected performance, the reality is that it was a weak outcome. Production, retail sales, exports, imports, and both consumer and producer price inflation were all worse than expected, especially compared to previous quarters.
Property, in particular, performed poorly, experiencing another significant decline in investment, sales, and new house prices.
On a quarter-on-quarter basis, China’s GDP grew 1.6% in the first quarter, exceeding market expectations of 1.4%, and an upwardly revised fourth-quarter expansion of 1.2%.
However, whether this growth rate reflects real economic improvement remains uncertain. Major indicators such as industrial production and retail sales fell well below forecasts, suggesting that economic activity across the board remains sluggish, with weak levels of demand.
Industrial output for the three months to March grew by 4.5% year-on-year, missing expectations of 6%, and falling short of the 7% seen in the final quarter of 2023. Similarly, retail sales grew by 3.1% year-on-year, lower than the expected 4.6% and the 5.5% recorded in the December quarter last year. Investment showed a slight increase at 4.5%, up from 4.2% in the preceding quarter, but still below the forecast of 4.2%.
Unemployment in major cities eased to 5.2%, ending a three-month streak of increases. However, industrial capacity utilization, another measure of activity, fell to 73.6% from 75.9% in the previous quarter, indicating weak demand.
Recent weeks have also seen weak export figures, a slight decrease in imports, and the return of deflation in consumer spending areas, particularly in March, when consumer prices shrank by 1%, while producer prices saw deflation accelerate to an annual rate of 2.8%.
The property sector remains a significant concern, with new home prices plummeting by a massive 2.2% in March alone across the country’s 70 major cities. This marks the largest monthly decline since the property crisis of 2015, when August of that year saw a fall of 2.37%, and April experienced a record 6.1% slump. This decline was 50% larger than the 1.4% drop observed in February, which was the largest since 2016, and significantly exceeded the market forecast of 0.2%.
This marks the ninth consecutive month of declining new house prices, serving as a proxy for new home numbers, as the Chinese government has refrained from releasing such data since 2015-16.
Property investment in China during the first quarter slid by 9.5% compared to the previous year, compared with a 9.0% fall in the January-February period, indicating that prospects for improvement remain uncertain.
Data from the National Bureau of Statistics (NBS) shows that property sales by floor area in January-March witnessed a 19.4% decline from the previous year, compared with a 20.5% fall in January-February. New construction starts, measured by floor area, dropped by 27.8% in the first quarter compared to a year ago, following a 29.7% plunge in the first two months of the year. Additionally, funds raised by China's property developers were down by 26% in January-March, following a 24.1% fall in the first two months.
