China reports economic rebound but warns of risks to recovery

China reported a rebound in consumer spending, industrial output and investment this year after coronavirus restrictions were dropped, while warning of risks to the economy’s recovery as unemployment rose and real estate investment continued to slump.
Retail sales rose 3.5% in January and February compared to the same period last year, the National Bureau of Statistics said on Wednesday. Industrial output rose 2.4% and fixed-asset investment grew strongly, as local governments increased infrastructure spending to spur the recovery. However, the unemployment rate increased, pointing to weakness in domestic demand.
The numbers were broadly in line with economists’ estimates and came after Beijing signalled that it would provide a similar fiscal stimulus to the economy as last year, betting on consumers to drive the recovery.
Economists said the data was consistent with China meeting its target of around 5% GDP growth this year, a significant boost to global demand as the US and European economies face recession fears.
The data is “pointing to a steady rather than accelerating momentum, which also indicates strong policy support is needed to unleash the growth potential,” said Zhou Hao, chief economist at Guotai Junan International Holdings. “The relatively high jobless rate seems to suggest that the further recovery of consumption will hinge on policy dynamics,” he said.
The two-month data may not fully reflect recent strength in consumer spending, as it includes January when China was hit by a wave of coronavirus infections that followed the government’s sudden ending of Covid restrictions the previous month. Cases apparently peaked ahead of the Lunar New Year holiday in late January, prompting people to travel and spend again. Factories also benefited as workforce shortages due to Covid eased.
The value of new apartment sales over the period rose 3.5% on-year, compared with a 22% slump in the first two months of 2022.
That recovery from a low base is a sign that Beijing’s financial support for the property sector is taking effect following a deep real estate slump which has lasted for more than a year. However, residential property investment fell 4.6%, meaning better sales are not yet leading to growth in housing investment which economists estimate drives up to 20% of demand in China’s economy.
Beijing has refrained from providing cash stimulus to households, betting that a pick-up in hiring by companies will boost wages and spending. However, China’s official urban unemployment rate rose to 5.6% from 5.5% in December, and the jobless rate for young people jumped to a six-month high of 18.1%.
“The problem of insufficient demand is still prominent. The economy’s foundation for rebounding is not yet secured,” the statistics bureau said in a statement.
The bureau combines the data releases for the two months of January and February to avoid distortions from the Lunar New Year holiday, which can fall in either month in different years.
Key highlights of the data:
n Industrial output rose 2.4% in January-February from a year earlier, lower than the 2.6% forecast.
n Retail sales increased 3.5% in the period, in line with expectations.
n Fixed-asset investment climbed 5.5% during the two-month period, better than the 4.5% estimate and 5.1% growth for the whole of last year. Overall property investment contracted 5.7%, less than the 8.5% decline predicted by economists.
n The urban unemployment rate rose to 5.6% from 5.5% in December. The jobless rate for young people jumped to a six-month high of 18.1%.