China's upbeat industrial output, retail sales tempered by frail
property
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[March 18, 2024] By
Ellen Zhang and Joe Cash
BEIJING (Reuters) -China's factory output and retail sales beat
expectations in the January-February period, marking a solid start for
2024 and offering some relief to policymakers even as weakness in the
property sector remains a drag on the economy and confidence.
Monday's data join recent better-than-expected exports and consumer
inflation indicators, providing an early boost to Beijing's hopes of
reaching what analysts have described as an ambitious 5.0% GDP growth
target for this year.
"China's activity data broadly stabilised at the start of the year. But
there are still reasons to think some of the strength could be one-off,"
said Louise Loo, China economist at Oxford Economics.
Industrial output rose 7.0% in the first two months of the year, data
released by the National Bureau of Statistics (NBS) showed on Monday,
above expectations for a 5.0% increase in a Reuters poll of analysts and
faster than the 6.8% growth seen in December. It also marked the
quickest growth in almost two years.
Retail sales, a gauge of consumption, rose 5.5%, slowing from a 7.4%
increase in December but beating an expected 5.2% gain.
The eight-day Lunar New Year holiday in February saw a solid return of
travel, which supported revenue of tourism and hospitality sectors. That
also led to a 3% growth in oil refinery throughput to meet strong demand
for transport fuels.
The NBS publishes combined January and February industrial output and
retail sales data to smooth out distortions caused by the shifting
timing of the Lunar New Year.
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"Consumers were buoyed temporarily by festivities-related spending at
this start of the year. In the absence of decisive consumption-related
stimulus this year, we think it would be difficult to sustain a robust
consumer spending pace this year," Oxford's Loo said.
Loo's cautious comments reflect broader consensus among China watchers
that Beijing has its work cut out in achieving its 2024 economic growth
target of "around 5.0%". While the goal was similar to 2023, analysts
note last year had a lower base effect due to COVID curbs in 2022.
Investors were relieved by the better-than-expected data, with Asian
shares firming and Chinese blue chips up 0.4%.
PROPERTY PAINS
A protracted crisis in the property sector, a key pillar of the economy,
remains a major concern for policymakers, consumers and investors.
Monday's data offered little relief on that front with declines in
property investment narrowing in January-February, but still far from
levels of reaching stability.
The frailty of the sector was highlighted by the poor demand. Property
sales by floor area logged a 20.5% slide in January-February from a year
earlier, compared with a 23.0% fall in December last year.
Goldman Sachs economists said China's sequential growth momentum
remained solid in the first quarter despite notable divergence across
sectors.
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![](../images/031824PIX/busine68.jpg)
Employees work on the trucks production line during an organised
media tour to the Shaanxi Automobile Group factory in Xian, Shaanxi
province, China May 17, 2023. REUTERS/Florence Lo/File photo
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"However, to secure the ambitious 'around 5%' growth target this
year, more policy easing is still necessary, especially on the
demand-side (e.g., fiscal, housing and consumption)."
On the brighter side, fixed asset investment expanded 4.2% in the
first two months of 2024 year-on-year, versus expectations for a
3.2% rise. It grew 3.0% in the whole of 2023.
Notably, private investment grew 0.4% in the first two months,
reversing the decline of 0.4% in the whole year of 2023
STRUCTURAL CHALLENGES
The job market, another area closely watched by authorities and
investors, showed mixed results having deteriorated sharply during
the COVID years.
The nationwide survey-based jobless rate rose to 5.3% in February
from 5.2% January, which NBS spokesperson Liu Aihua attributed to
seasonal factors associated with the Lunar New Year.
Premier Li Qiang promised at the annual parliamentary meeting
earlier this month to transform the country's growth model and
defuse risks in the property sector and local government debt.
The country's central bank governor Pan Gongsheng also said earlier
this month that there was still room to cut banks' reserve ratio
requirement (RRR), following a 50-basis points cut announced in
January, which was the biggest in two years.
Global monetary easing expectations may also offer some relief for
China's hopes of strengthening its vast manufacturing sector
although economic conditions in many key developed nations look
gloomy over the near term. Britain slipped into a recession in the
second half of last year, while Japan and the euro zone have shown
meagre growth.
Policymakers have pledged to roll out further measures to help
stabilise growth after the steps implemented since June had only a
modest effect, but analysts caution Beijing's fiscal capacity is now
very limited and note Li's address to the annual parliamentary
meeting failed to inspire investor confidence.
Many economists say there is a risk that China may begin flirting
with Japan-style stagnation later this decade unless authorities
take steps to reorient the economy towards household consumption and
market-allocation of resources.
"We expect economic momentum to improve further in the near-term
given the tailwind from policy stimulus," said Zichun Huang, China
economist at Capital Economics.
"But this recovery may prove short-lived due to the economy's
underlying structural challenges".
(Additional reporting by Albee Zhang; Editing by Sam Holmes and Shri
Navaratnam)
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