China's economy has shown signs of recovery as consumers went on a spending spree after three years of strict pandemic restrictions ended. According to the National Bureau of Statistics, gross domestic product (GDP) grew by 4.5% in the first quarter from a year ago, surpassing the Reuters poll of economists' estimate of 4% growth. However, the private investment barely budged, and youth unemployment surged to the second highest level on record, indicating the country's private sector employers are still wary about longer-term prospects.
Consumption posted the strongest rebound, with retail sales jumping 10.6% in March from a year earlier, the highest level of growth since June 2021. In the January to March months, retail sales grew 5.8%, mainly lifted by a surge in revenue from the catering service industry. Industrial production also showed a steady increase, up 3.9% in March compared with 2.4% in the January-to-February period.
Last year, GDP expanded by just 3%, badly missing the official growth target of "around 5.5%," as Beijing's approach to stamping out the coronavirus wreaked havoc on supply chains and hammered consumer spending. After mass street protests gripped the country and local governments ran out of cash to pay huge Covid bills, authorities finally scrapped the zero-Covid policy in December. Following a brief period of disruption due to a Covid surge, the economy has started showing signs of recovery.
While investment banks and international organizations have upgraded China's growth forecasts for this year, some analysts believe that the strong growth reported in the first quarter was the product of "backloading" of economic activity from the fourth quarter of 2022, which was weighed down by pandemic restrictions and then a chaotic reopening.
If adjustments are made to account for the impact of delayed economic activity, GDP growth in the first quarter could have been just 2.6%, according to Raymond Yeung, chief economist for Greater China at ANZ Research. Some key data released on Tuesday support this idea, for example, private investment was extremely weak. Fixed asset investment by the private sector increased a mere 0.6% from January to March, indicating a lack of confidence among entrepreneurs.
The Chinese government has resorted to surprising measures to restore confidence among private entrepreneurs, but the campaign has inspired more nervousness than optimism. The all-important property industry is also mired in a deep downturn, with investment declining by 5.8% in the first quarter and property sales by floor area decreasing by 1.8%.
On the other hand, the high jobless rate among the youth, which hit 19.6% in March, up for a third straight month, was the second highest on record, only behind the 19.9% level reached in July 2022. The jobless rate among the youth suggests "slack in the economy," Yeung said. "By June, there will be a new batch of graduates looking for jobs. The jobless condition could worsen further if China's economic momentum falters," he added. China's education ministry has previously estimated that a record 11.6 million college graduates will be looking for jobs this year.
Despite the challenges, the domestic economy is recovering well, and the combination of a steady uptick in consumer confidence and the still-incomplete release of pent-up demand suggests that the consumer-led recovery still has room to run, said Louise Loo, China lead economist for Oxford Economics.