Overview

• Overall, data for China’s economic performance at the start of 2023 are quite mixed. Despite the reopening (since China abandoned its zero-COVID policies in early December), there has not yet been a wave of “revenge spending”. Given the likely weakness in demand for China’s exports in 2023, authorities have identified consumption as the key driver of growth this year – yet the big driver in January and February was investment. Our forecasts are unchanged this month, with China’s economy to grow by 5.4% in 2023 and 4.5% in 2024.
• Growth in China’s industrial production was somewhat stronger in January and February – increasing by 2.4% yoy (compared with a 1.3% yoy increase in December). When compared with trends prior to the COVID-19 pandemic, this remains a weak rate of growth.
• In real terms, China’s fixed asset investment rose by 4.4% yoy in January and February (compared with a 1.7% yoy increase in December). Nominal investment continues to be driven by state-owned enterprises (SOEs), a trend that has been evident since early 2022.
• China’s trade surplus averaged US$58.4 billion per month across January and February, compared with US$78.0 billion in December. The average value of both exports and imports was lower – both compared with December and the same period in 2022 – highlighting the deteriorating global trade environment.
• China’s real retail sales rose by an estimated 1.8% yoy in the first two months of 2023 (the largest increase since August 2022), following a 3.7% yoy fall in December. While the removal of zero-COVID restrictions allowed greater freedom of movement and activity, this increase was modest when compared with pre-pandemic growth rates – suggesting that we are yet to see any “revenge spending” rebound from the household sector.
• New credit issuance expanded rapidly in the first two months of 2023 – increasing by 23.7% yoy to RMB 9.1 trillion – the strongest rate of increase since the bond-fuelled surge of mid-to-late 2020. Bank lending was the key driver of the increase in credit issuance, increasing by 28.7% yoy to RMB 6.8 trillion. Reports suggest that mortgage lending was a key driver of this uptick, but it remains to be seen how sustainable the rebound in the property sector proves to be.
• The PBoC has held its main policy rate – the Loan Prime Rate – unchanged since August 2022. Instead, the PBoC has identified further cuts to the Reserve Requirement Ratio (RRR), which would free up further funds for bank lending. Although demand for credit appeared stronger in the first two months of 2023, supply has continued to outpace demand since early last year – meaning that it is unclear that a cut to the RRR would have a significantly stimulatory effect.

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