The Chinese economy grew more than expected in the first three months of the year, fueled by increased factory construction and exports to offset sluggish domestic spending and a real estate crisis. In an effort to stimulate growth, China invested heavily in its manufacturing sector, resulting in strong sales of products such as solar panels and electric cars. However, this reliance on exports raised concerns among foreign countries and companies about potential job losses and the impact on their own manufacturing industries. Despite the growth, officials warn that the foundation for stable economic growth is still not solid.
China’s National Bureau of Statistics reported a 1.6 percent growth in the economy in the first quarter compared to the previous three months, with projections putting the annual growth rate at around 6.6 percent. Retail sales increased modestly at 4.7 percent year on year, with a particular weakness in March. The country’s economic growth relies on robust consumer spending to address high youth unemployment and high levels of debt for companies and households. Economists warn that China is experiencing a “sugar high” of factory construction driven by heavy bank lending.
Despite setting a growth target of about 5 percent for the year, China’s economy grew by 5.2 percent last year. Output in the first quarter of this year was 5.3 percent higher than the same period last year, exceeding expectations. The growth was fueled by a significant increase in factory investments and strong exports early in the year. However, the actual contribution of exports to the economy was even greater than expected due to falling prices hiding the full extent of gains.
While the Chinese government encourages increased domestic spending through various activities and promotions, many consumers are increasing their savings in response to a decline in the value of their apartments. Falling prices remain a challenge for exports and the wholesale level, prompting Chinese companies to reduce export prices to compete in global markets. International concerns have been raised about the potential disruption of supply chains and job losses as a result of China flooding markets with exports.
China’s housing construction sector is experiencing a deep slump, with a decline in new apartment sales and construction projects. This sector was previously a key driver of economic growth in China, but weak sales have led to a drop in real estate investment. Chinese officials attribute weaknesses in the economy to high overseas interest rates, which have encouraged families and companies to move money out of China to places with higher interest rates.
Chinese households heavily invested in apartments are cutting back on spending in response to falling home prices, increasing dependence on exports to absorb surplus industrial output. Companies in various sectors now produce more than domestic consumption can absorb, leading to reduced consumer spending. Small businesses in neighborhoods like Wangjing in Beijing are struggling to recover from the impact of government crackdowns, job cuts, and Covid-19 restrictions, with many facing challenges in attracting customers due to cautious consumer behavior and price sensitivity.
