Overview

• According to China’s national accounts data, its economy grew by 4.5% yoy in Q1. This was stronger than market expectations (at around 4.0%), reflecting the faster than anticipated transition period following the end of zero-COVID policies, as well as support from base effects (with the end of Q1 2022 marking the start of the COVID-19 wave that would heavily impact the following quarter). We have revised our forecast for China’s growth in 2023 to 5.6% (5.4% previously), although the property sector and foreign trade could be headwinds. The outlook for 2024 and 2025 is unchanged.
• China’s industrial production grew more strongly in March, up by 3.9% yoy (compared with 2.4% yoy in January-February). It is worth noting that this remains a relatively weak rate of growth when compared with the pre-pandemic trend.
• Growth in nominal fixed asset investment slowed in March. That said, the declines in producer prices – which flow through into the cost of investment goods – accelerated in March. As a result, our estimate of real investment rose to 5.2% yoy (from 4.4% yoy in January and February).
• China’s trade surplus strengthened in March, totalling US$88.2 billion (compared with an average of US$58.4 billion across January and February). Both exports and imports were stronger in March, with the increase in the surplus driven by the more rapid upturn in exports. We expect tighter financial conditions in advanced economies, along with the shift in preferences towards services, to limit export growth going forward.
• In nominal terms, China’s retail sales rose by 10.6% yoy in March (compared with 3.5% yoy in January and February). It is worth noting that this growth rate was boosted by base effects – with retail sales falling by almost 1.4% mom in March 2022 as the COVID-19 outbreak in Shanghai (that led to a long running hard lockdown) began to emerge.
• New credit issuance has continued to expand strongly – up by 20.5% yoy in the first three months of 2023 to total RMB. Bank lending has been the key driver of credit issuance in early 2023 – increasing by 26.4% yoy to RMB 10.8 trillion. Growth in outstanding bank loans has been primarily driven by increased lending to households – reflecting a modest recovery in the property sector, but it remains to be seen how sustainable this upturn proves to be.
• China’s monetary authorities have continued to ease policy from a quantity perspective – by cutting the Reserve Requirement Ratio (RRR) – rather than the price (with the Loan Prime Rate having remained unchanged since August 2022). This change may not have a significant impact on lending – given that banks were not facing a shortage of liquidity prior to the cut, and the Loan Prime Rate has been providing something of a floor to interbank rates. Some of the rationale may have been pre-emptive support for Chinese banks in the event that mid-March’s banking sector fears in the United States and Europe became global.

For further details, please see China’s economy at a glance (April 2023)