China’s economy exceeded expectations in the first quarter of 2024, with a growth rate of 5.3% compared to a year ago. This growth was faster than the 5.2% expansion in the previous quarter and higher than the 4.6% growth expected by economists. External demand played a significant role in driving this growth, with export volume increasing by 14% year on year. The Chinese government has set a growth target of around 5% for the year.
Industrial output for March grew by 4.5% year on year, falling short of expectations at 6%. Similarly, retail sales grew by 3.1% year on year, lower than the 4.6% expected growth. The weak industrial output was attributed to sluggish utilization rates of industrial capacity, while the slowdown in retail sales was considered expected. Analysts believe that policy measures focusing on equipment investment and product renewal could provide a temporary boost to domestic demand and help achieve the annual GDP target of 5%.
Unemployment in major cities in China decreased slightly to 5.2% in the first quarter, breaking a streak of increase in the preceding three months. The offshore yuan strengthened briefly following the positive economic data release but retreated from a five-month high against the dollar. Despite the stronger-than-expected growth, concerns remain about the unbalanced nature of the economic expansion, particularly due to muted domestic demand.
China’s real estate sector continued to struggle in the first quarter, with property investments declining by 9.5% year on year. The floor space of new commercial buildings sold also fell by 19.4% compared to the previous year. Several major real estate developers, including Evergrande and Country Garden Holdings, faced financial difficulties, with China Vanke reporting operational challenges and liquidity pressures. The Hang Seng Mainland Property Index plummeted by 19% year-to-date and nearly 50% over the last 12 months.
Despite the positive economic growth in the first quarter, concerns persist about the unbalanced nature of the expansion and the struggles faced by the real estate sector in China. While external demand has helped drive growth, domestic demand remains muted, posing a challenge to sustaining the momentum. Policy measures focusing on equipment investment and product renewal may provide temporary support to domestic demand and help achieve the government’s annual GDP target of around 5%. Analysts remain cautious about the overall economic outlook, highlighting the need for continued monitoring of key indicators.
