Overview

• According to official national accounts data, China’s economy grew by 4.8% yoy in the first quarter of 2022, up from the 4.0% yoy increase recorded in Q4 2021. That said, quarterly growth slowed in Q1 – down to 1.3% qoq, compared with 1.5% qoq in Q4 – with comparatively strong trends in various partial indicators across January and February dampened by the impact of COVID-19 in a range of population centres in March. The outlook for China’s economy remains extremely clouded – particularly in the near-term, given the policy responses to COVID-19 outbreaks. We have kept our forecasts unchanged this month, with growth of 5.0% in 2022 and 5.4% in 2023.
• Growth in China’s industrial production eased back to 5.0% yoy in March (from the surprisingly strong 7.5% yoy increase recorded across January and February). COVID-19 outbreaks in a number of industrial centres – most notably Shenzhen – impacted activity, however this was more evident in surveys than industrial production data.
• Nominal fixed asset investment grew less rapidly in March – up by 7.1% yoy (compared with the 12.2% yoy increase across January-February). The easing in producer price growth should have flowed through to the cost of investment goods, meaning that our estimate of real investment declined more modestly – up by 1.5% yoy (from 5.9% yoy in the first two months).
• China’s trade surplus continued to narrow in March to US$47.4 billion (compared with an average of US$58.0 billion across January and February). While this level is weaker than the peaks recorded in late 2021, it remains high by historical standards.
• Retail sales activity plunged in March as COVID-19 restrictions impacted various centres. Retail price inflation was also somewhat stronger in March than the start of the year, meaning a larger contraction in real retail sales – which fell by 6.0% yoy (compared with a 5.0% yoy increase across January-February).
• In the first quarter of 2022, China’s new credit issuance totalled RMB 12.0 trillion, an increase of 16.8% yoy. Bank lending rose relatively modestly in Q1, up by 5.2% yoy, while non-bank lending surged in the first quarter, up by almost 60% yoy. Government bond issuance was the key driver of this increase, while corporate bond issuance also rose strongly.
• At the early April meeting of China’s State Council, authorities expressed concerns around the larger than expected risks emerging in both the domestic and global economy. They suggested that multiple monetary policy tools will be used at an appropriate time to support the economy – without providing any specific information around the tools or timing. The People’s Bank of China cut the Reserve Requirement Ratio (RRR) for banks in mid April – which will increase the funds available for them to lend to customers – however further interest rate cuts would carry considerable risk, particularly given the increasingly hawkish outlook for other major central banks. A prolonged monetary policy imbalance could risk capital outflows that could destabilise China’s financial sector.

For further details, please see China’s economy at a glance (April 2022)