China economy rebounds from Covid slump as spending picks up

CHINA’S economic activity strengthened in the first two months of the year as investment picked up and consumer spending recovered following the ending of Covid restrictions.

Retail sales rose 3.5 per cent from the same period last year, figures from the National Bureau of Statistics (NBS) showed on Wednesday (Mar 15), in line with forecasts and reversing from a 1.8 per cent drop in December. Industrial output growth accelerated to 2.4 per cent in the two-month period, slightly below expectations.

Fixed-asset investment climbed 5.5 per cent during the two-month period, better than the 4.5 per cent estimate and 5.1 per cent growth for the whole of last year. The jobless rate rose to 5.6 per cent following the Chinese New Year holidays, with the rate for young people jumping to a six-month high of 18.1 per cent.

China abruptly dropped its Covid Zero strategy in December, leading to a surge in infections through January. Cases peaked earlier than expected, though, prompting people to travel and spend again and providing a boost to the services sector. Factories also benefited as logistics bottlenecks and restrictions ended.

“The economy’s circulation is increasingly smooth, production and demand improved markedly, and the economy has stabilised and rebounded,” the NBS said in a statement. “But the external environment is increasingly complex, and the problem of insufficient demand is still prominent.”

The bureau usually combines the data releases for the two months of January and February to avoid distortions from the Chinese New Year holiday, which can fall in either month depending on the year.

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China’s CSI 300 Index of stocks gained 0.5 per cent as of 10.16 am local time, while future contracts of 10-year bonds fell 0.1 per cent. The yuan was little changed.

A breakdown of the retail data shows sales of Chinese and western medicine rose the fastest, by 19.3 per cent in the two-month period. Sales of petroleum and its products grew 10.9 per cent and catering rose 9.2 per cent.

Investment picked up as local governments boosted sales of special bonds in the first two months of the year to front-load spending in infrastructure.

The rebound will be encouraging news to the top leadership, who have made economic growth a top priority this year. Beijing set a modest target for gross domestic product growth of around 5 per cent for this year, signalling it will avoid any big stimulus through infrastructure investment or the property market. However, a fairly ambitious job creation goal of “around 12 million” suggests policy will remain supportive.

China’s new Premier Li Qiang said on Monday the growth target “is not an easy task” and “requires redoubled efforts”. The nation will prioritise stability in growth, prices and jobs while seeking to make progress in high-quality development, he said.

Earlier on Wednesday, the central bank boosted net cash injections into the financial system by the most since December 2020, providing banks with additional liquidity as demand for loans picks up.

The economy is expected to grow 5.3 per cent this year, according to economists surveyed by Bloomberg. However, a number of risks cloud the outlook, including waning global demand, a struggling property market and rising geopolitical tensions. BLOOMBERG