China economy starts year strongly as Covid, war risks loom

Beijing

CHINA'S economy started the first 2 months of the year on a strong footing, although risks are growing as the number of local coronavirus cases surge and global energy prices spike due to Russia-Ukraine tensions.

Industrial output grew 7.5 per cent in the 2 months through February, figures from the National Bureau of Statistics (NBS) showed on Tuesday (Mar 15), compared with 4.3 per cent in December.

Economists had expected 4 per cent expansion.

Retail sales rose 6.7 per cent, accelerating from 1.7 per cent in December and beating a 3 per cent increase projected by economists. Investment climbed 12.2 per cent during the 2-month period, better than the 5 per cent estimate and last year's 4.9 per cent growth.

The surveyed jobless rate rose to 5.5 per cent last month, mainly due to seasonal factors.

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"Overall the economy had good recovery momentum in January and February," NBS spokesman Fu Linghui said in a statement.

However, the "external environment still remains complex and grim, and there are many risks and challenges faced by China's economy," it added.

Data in the first 2 months are usually distorted by the Chinese New Year holidays and also complicated by the high base of comparison from last year.

The data showed a strong recovery in household spending and investment by state-owned companies in the first 2 months of the year before the country was hit by widespread coronavirus outbreaks, but a slump in the housing market persisted.

China is facing its worst Covid outbreak since the peak of the first wave in Wuhan, with lockdowns in places like Shenzhen and Jilin province causing disruption to technology and other manufacturing.

"China's economy is still moving around the bottom," said Lu Ting, chief China economist at Nomura Holdings. "There's no clear sign of a significant rebound. The quality of data during the Lunar New Year isn't very high anyway, plus the rapidly spreading Covid cases over the past three weeks, we cannot assume data for March will be naturally good."

The worsening outlook will make it hard for the government to achieve its ambitious growth target of around 5.5 per cent this year, which Premier Li Keqiang acknowledged won't be easy to achieve.

The government has pledged to step up fiscal and monetary support, although the People's Bank of China signalled on Tuesday it's not rushing to add more stimulus just yet.

The central bank surprised many by refraining from lowering its one-year medium-term lending facility rate, as expected by a majority of economists in a Bloomberg survey.

Instead, the PBOC added monetary stimulus by injecting a net 100 billion yuan (S$21.5 billion) of funds into the financial system.

"The Jan-Feb data are quite strong, which may be a reason why the PBOC didn't cut rate today," said Larry Hu, an economist at Macquarie Capital in Hong Kong. "But there's certainly big downside risk in March as the government is likely to have prioritised Covid control before economic growth. So there's still downside pressure in the first quarter and more policy support will be needed."

The data showed ongoing weakness in the property market, with residential property sales contracting 22.1 per cent in the first 2 months of the year from the same period in 2021.

Data on Friday showed a slump in credit expansion with a key indicator of home mortgages declining for the first time in at least 15 years despite efforts to boost borrowing by cutting rates and lowering down payments. BLOOMBERG