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China’s push into high-tech manufacturing has helped buoy the economy, which registered GDP growth of 5 per cent year-on-year in the first quarter as it braces itself for the impact of the Iran war.
The growth figure exceeded the expectations of analysts surveyed by Bloomberg of 4.8 per cent and the previous quarter’s growth of 4.5 per cent. It was also at the upper end of the government’s target for this year of 4.5-5 per cent. Exports, high-tech manufacturing and fiscal stimulus offset a still weak domestic economy.
The strong start to the year comes as China’s economy is expected to take a hit from the Iran war and rising energy prices, which will alleviate long-running deflationary pressures but compress the already tight margins of its hyper-competitive industrial sector.
“As a major country deeply integrated into the global economy, China will definitely be affected to some degree,” said Mao Shengyong, the deputy commissioner of the National Bureau of Statistics, of the energy shock.
“We should still have the conditions to maintain a relatively fast growth rate for some time to come.”
President Xi Jinping is expected to meet his US counterpart Donald Trump in mid-May in Beijing for talks, with hopes that the two countries will continue a year-long trade truce.
The expansion in the first three months was driven partly by better than expected industrial output, which rose 5.7 per cent year-on-year in March compared with analyst forecasts of 5.3 per cent.
Retail sales growth, seen as one indicator of consumer sentiment, was weaker than expected at 1.7 per cent compared with analyst forecasts of 2.4 per cent in March.
“The national economy achieved a good start,” said the NBS in a statement on the figures. “Industrial production growth accelerated, with rapid growth in the equipment manufacturing and high-tech manufacturing sectors.”
The bureau said equipment manufacturing increased 8.9 per cent year-on-year in the first quarter, while high-tech manufacturing picked up 12.5 per cent, with 3D printing equipment, lithium-ion batteries and industrial robots rising 54 per cent, 40.8 per cent and 33.2 per cent respectively.
Fixed asset investment continued to recover after declines last year, rising 1.7 per cent in the first quarter, while property investment again fell sharply, down 11.2 per cent from the same period a year earlier.
Capital Economics said that, according to its China activity proxy, an alternative measure of GDP growth, the economy grew only 3 per cent year-on-year in January and February and probably a bit less in March.
“The big picture is that all of the acceleration in GDP growth in Q1 was driven by construction and industry,” said Capital Economics’ Zichun Huang in a note. “And while there has been some tentative improvement in domestic demand growth, the main source of strength has been exports.”
Huang said the Iran war would add to this trend. While fuel prices would drag down domestic demand, they would boost demand for Chinese green-tech exports.
“The upshot is that, while the Chinese economy is holding up well, it is becoming ever more dependent on external demand,” Huang said.
Junyu Tan, regional economist for North Asia at Coface, said that “the solid start to the year on the back of strong export performance suggests the direct impact of the Middle East conflict remains contained for now”.
But Tan said the investment rebound could lose steam as fiscal support faded and consumption growth weakened in the absence of subsidies on purchases of consumer goods that gave it a boost last year.
The fall in housing prices in March indicated “still-cautious buyer sentiment and ample existing supply”, said Yuhan Zhang, principal economist of the China Center at the Conference Board.
He said that fixed asset investment growth was being directed towards “‘new quality productive forces’ and infrastructure upgrading”.
New quality productive services is government terminology for investment in advanced industry, such as EVs and green energy.
