Overview

• According to China’s latest national accounts data, its economy expanded by 5.3% yoy in Q1 2024 (compared with a 5.2% yoy increase in Q4 2023) – stronger than markets had anticipated. Disaggregated data showed some diverging trends – growth was driven by the manufacturing and construction sectors (despite the downturn in building construction) – while services growth eased. Combined with weak retail and lending data, these point to ongoing weakness in domestic demand, with the manufacturing sector increasingly reliant on exports – leading to growing trade tensions. As a result of the questionable sustainability of this growth, our forecasts are unchanged – we expect China to miss its growth target this year, expanding by 4.5% in 2024 and 4.8% in 2025.
• China’s industrial production growth slowed in March – increasing by 4.5% yoy (down from an average increase of 7.0% yoy in January and February). It is worth noting that the January-February increase was likely inflated by base effects, due to China’s economy adjusting to the end of zero-COVID policies in late 2022.
• Real fixed asset investment growth picked up in March – increasing by 6.0% yoy (compared with an average increase of 5.4% yoy in January and February). The wide disparity in investment trends by individual sectors has continued – with real estate investment continuing to plunge, while manufacturing investment has accelerated.
• China’s trade surplus was narrower in March than the average across January and February, as an uptick in imports outpaced the increase in exports. The surplus totalled US$58.6 billion (down from an average of US$62.6 billion across the first two months). It is worth noting that by historical standards, this surplus remains comparatively high. Data on export prices and volumes is lagged by a month. On average, export volumes rose by around 20% yoy across January and February, while export prices fell by over 8% yoy.
• Real growth in retail sales was relatively subdued in March, increasing by 3.0% yoy (compared with an average increase of 5.6% yoy in January and February). This indicator does not point to any notable improvement in domestic demand.
• The People’s Bank of China (PBoC) has kept its policy rate unchanged since mid-2023. In an environment of such weak loan demand, it is unclear that any rate cuts, or cuts to banks reserve requirement ratios, would have a meaningful stimulatory effect.

For further details, please see China’s economy at a glance (16 April 2024)