China’s economy grew more than expected in the first three months of the year, new data shows, as China built more factories and exported huge quantities of goods to counter a severe crisis real estate and weak domestic spending.
To stimulate growth, China, the world’s second largest economy, has turned to a familiar tactic: investing heavily in its manufacturing sector, including a slew of new factories that have helped propel worldwide sales of solar panels, electric cars and other products.
But China’s bet on exports worries many foreign countries and companies. They fear that an influx of Chinese shipments to distant markets could harm their manufacturing industries and lead to layoffs.
On Tuesday, China’s National Bureau of Statistics said the economy grew 1.6 percent in the first quarter compared with the previous three months. When projected for the full year, first-quarter data indicates that China’s economy grew annually by about 6.6 percent.
“The national economy is off to a good start,” said Sheng Laiyun, deputy director of the statistics bureau, while warning that “the foundation for stable and healthy economic growth is not yet solid.”
Retail sales grew at a modest pace of 4.7 percent compared to the first three months of last year and were particularly weak in March.
China needs robust consumer spending to reduce youth unemployment, which remains high, and to help businesses and households cope with very high debt levels.
Economists at the Federal Reserve Bank of New York warned last month that China is experiencing a “sugar spike” in factory construction fueled by large bank loans.
For the year, China recorded growth target of around 5 percent, a goal that many economists considered ambitious, although some have recently revised their forecasts upwards. Last year, China’s economy grew 5.2 percent.
Output was 5.3 percent higher in the first three months of this year than in the same period last year, the statistics office said Tuesday, beating economists’ forecasts.
A breakneck pace of investment in factories, up 9.9% from last year, has played a central role in China’s growth. Strong exports earlier this year also contributed to the situation.
The value of exports rose 7 percent in dollar terms in January and February from a year earlier, and 10 percent when measured in China’s currency, the renminbi. But the real contribution of exports to the country’s economy has been considerably greater, with falling prices masking the full extent of China’s export gains.
Guo Tingting, vice minister of Commerce, said at a press conference last month that the physical volume of exports increased by 20 percent in January and February compared with last year. However, exports fell somewhat in March.
With street festivals and other activities, the government has encouraged families to spend more, even as many Chinese have increased their savings to compensate for the recent fall in the value of their apartments.
Domestic tourism spending and box office ticket sales both increased during the Lunar New Year in February, easily surpassing pre-Covid-19 pandemic levels. Smartphone sales have also increased, although not for Apple – as Chinese buyers increasingly choose local brands.
The widespread fall in prices, a phenomenon which can turn into deflation, continues to pose a problem, particularly for exports and at the wholesale level. Chinese companies are struggling to reduce export prices and capture a greater share of global markets, even if it means suffering heavy losses.
In high-level meetings earlier this month with Chinese officials, Treasury Secretary Janet L. Yellen warned that flooding markets with exports would disrupt supply chains and threaten industries and jobs. German Chancellor Olaf Scholz expressed similar concerns during a visit to China, while warning against protectionism in Europe.
China, for its part, is experiencing a deep decline in housing construction and apartment prices. Housing construction – and the production of steel, glass and other materials – has been the main engine of growth in China for many years.
But sales of new apartments have been declining fairly steadily since the start of 2022. Few construction projects are starting now, while dozens of insolvent or near-insolvent developers are struggling to complete the homes they promised buyers. Investment in real estate projects plunged 9.5 percent in the first quarter compared to the previous year.
Chinese officials blame China’s economic weaknesses in part on government-induced high overseas interest rates. Federal Reserve to fight inflation in the United States. These rates have made it more attractive for Chinese families and businesses to transfer money out of China, where interest rates are low, to foreign countries where rates are higher.
“The negative impact of the high interest rate environment on the economy continues,” said Liu Haoling, chairman of the China Investment Corporation, China’s sovereign wealth fund. He spoke in late March at the China Development Forum, a meeting in Beijing of policymakers and leaders.
China’s manufacturing juggernaut, buoyed by years of policy directives and financial support from Beijing to local governments and businesses, has made the country’s products some of the cheapest in the world. The U.S. government revealed last week that average prices for imports from China were down 2.6% in March from a year earlier.
China has asked companies to invest more in research and development, hoping a wave of innovation would boost economic development.
The country is also demanding that factories pursue greater automation. “By 2025, we will have achieved a new type of industrialization,” Jin Zhuanglong, Minister of Industry and Information Technology, said at the China Development Forum.
Many Chinese households have borrowed heavily to invest in apartments and are responding to falling property prices by reducing their spending. This makes China more dependent on exports to sell its rapidly growing industrial output.
“Chinese companies, across a wide range of sectors, are now producing far more than domestic consumption can absorb,” the Rhodium Group, a consultancy, said in a report in late March.
People’s distrust of spending is a phenomenon Li Zhenya sees every day. He runs Izakaya Jiuben, a Japanese restaurant in Beijing’s Wangjing district, which was once home to some of China’s biggest tech companies.
A few years ago, workers lined up outside the restaurant, streaming out of nearby offices to spend their hard-earned money on short breaks between long work days. These days, many restaurant seats are empty at lunch and dinner.
“People’s desire to consume is not so high today,” said Mr. Li of Jiuben. The restaurant, he said, generates about $2,156 in revenue a day, about half its sales just a few years ago.
“I’m losing money running the restaurant,” he said.
Jiuben is on the fourth floor of Pano City Mall, where restaurants advertising Korean, Japanese and Chinese dishes operate next to empty storefronts. Some places seem abandoned: the lights are off but a pile of takeaway boxes sits near the cash register, the lamps are still hanging or the chairs and tables are intact.
Centered around three curved, pebble-shaped buildings designed by Zaha Hadid, the Wangjing district was once a hub of activity for the capital’s busiest workers. Restaurants and stores have benefited from the presence of companies like Alibaba, JD.com and Meituan.
“Before, the lights were turned on when darkness fell, but now at least half of the lights are turned off,” Mr. Li said.
A government crackdown starting in 2020 caused companies to cut jobs. Others left Wangjing. Covid-19 restrictions that froze the neighborhood for weeks have made it difficult for Wangjing’s small businesses to resume.
“The outbreak has led to cautious consumption,” said Kou Yueyuan, the owner of Smoon Bakery, down the street in Pano Town. “Customers are obviously very price sensitive,” Ms. Kou said.
Ms. Kou started her business more than eight years ago, selling baked goods like bitter melon bagels and ube mochi twists. Now, it places less emphasis on developing new baked goods with different flavors. Instead, she works to keep costs low so the bakery can offer cheaper prices.
Read you contributed to the research.
