Chinese economy soars to record one year after pandemic crisis

Chinese economy soars to record one year after pandemic crisis

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Photographe: Qilai Shen / Bloomberg

The Chinese economy exploded in the first quarter as consumer spending strengthened, joining production and investment to recover from the Covid crisis a year ago.

Gross domestic product climbed a record 18.3% in the first quarter from a year earlier, largely in line with the 18.5% forecast in a Bloomberg survey of economists. The numbers are skewed by comparisons from a year ago when the economy was stuck. A better reading of the dynamics of the economy comes from quarterly growth, which slowed to 0.6% from 2.6% in the previous three months.

Other highlights
  • Industrial production rose 14.1% in March from a year earlier compared to economists’ median projection of 18%
  • Retail sales rose 34.2% in March, beating expectations of a 28% gain
  • Capital investment soared 25.6% in the first quarter compared to a year ago
  • The unemployment rate was 5.3% at the end of March
  • Based on two-year average growth, GDP grew 5% in the quarter, while infrastructure investment increased 2.3%. Retail sales increased 6.3% in March on a two-year average basis

The Chinese economy has steadily accelerated after a historic contraction in the first quarter of last year, recovering all of its lost ground at the end of September. The rebound was led by strong industrial production and robust exports as the pandemic fueled demand for Chinese-made medical products and electronics.

Sag and rebound

Expected growth spurt reflects last year’s crisis

Source: National Bureau of Statistics

“We are seeing a somewhat more balanced recovery of the Chinese economy,” Wang Tao, chief economist of China at UBS SA, said in an interview with Bloomberg TV. As politics begin to normalize, investment in real estate and infrastructure is expected to slow over the next few quarters, she said. “So this early recovery in the construction industry is going to give way to more household consumption,” she said.

China’s benchmark CSI 300 erased a previous loss of 0.6%. China’s 10-year government bond futures also reversed earlier losses to rise up to 0.1%, while the benchmark 10-year sovereign debt yield fell by one point base at 3.165%. The onshore yuan fell 0.17%, the first decline this week, to 6.5329 to the dollar.

Exceptional GDP growth, rising inflation and skyrocketing debt levels have warned policymakers. Beijing has indicated it wants to cut fiscal and monetary stimulus now that the recovery gathers pace and tightens regulatory oversight in areas such as lending and real estate. The central bank has asked banks to curb loan growth in the coming months, although officials have insisted on a gradual reduction in the policy.

Globally, vaccine deployment is helping support the global economy and supporting China’s growth. On top of that, the massive fiscal stimulus from the Biden administration is expected to have huge spinoffs for the rest of the world, especially China, the world’s largest exporter. Bloomberg Economics’ Chang Shu improved the growth forecast for China for this year to 9.3% from 8.2% previously. The government official target is more than 6% growth this year.

– With the help of James Mayger, Lin Zhu, Lianting Tu, Livia Yap and Catherine Ngai

(Updates with the economist’s commentary and market reaction.)

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