On April 18, China’s National Bureau of Statistics (NBS) released the country's economic data for the first quarter of 2023. Against the backdrop of global economic recovery efforts and ongoing geopolitical competition, whether China, as the world's second-largest economy, can maintain stable growth has a significant impact on both its economy, as well as on the world.
Figure 1: 2019 – 2023 China’s Q1 Year-on-Year Economic Growth (%)
Source: NBS. Chart plotted by ANBOUND.
In terms of the overall economic scale and growth rate, according to the preliminary accounting by the NBS, the Gross Domestic Product (GDP) of China in the first quarter of 2023 was RMB 28,499.7 billion at current prices, a year-on-year increase of 4.5%, and a quarter-on-quarter increase of 2.2% compared to the fourth quarter of the previous year. As for different industries, the value added of the primary industry was RMB 1,157.5 billion, a year-on-year increase of 3.7%; the value added of the secondary industry was RMB 10,794.7 billion, an increase of 3.3%. Meanwhile, the value added of the tertiary industry was RMB 16,547.5 billion, an increase of 5.4%.
In the industrial sector, the value added of the national scale industries increased by 3.0% year-on-year in the first quarter, which was 0.3 percentage points faster than that in the fourth quarter of the previous year. In terms of economic types, the value added of state-owned holding enterprises increased by 3.3%; that of joint-stock enterprises increased by 4.3%; that of foreign-invested enterprises, as well as those from Hong Kong, Macao, and Taiwan, decreased by 2.7%; and that of private enterprises increased by 2.0%. From January to February, the total profit of industrial enterprises above the designated size nationwide was RMB 887.2 billion, a year-on-year decrease of 22.9%. In the service industry, the value added increased by 5.4% year-on-year in the first quarter, which was 3.1 percentage points faster than that in the fourth quarter of the previous year. Among them, the value added of accommodation and catering, information transmission, software and information technology services, financial industry, leasing and business services, and wholesale and retail industries increased by 13.6%, 11.2%, 6.9%, 6.0%, and 5.5%, respectively.
Figure 2: National Fixed Asset Investment (Excluding Rural Households)
Regarding investment, in the first quarter, national fixed asset investment (excluding rural households) was RMB 10,728.2 billion, a year-on-year increase of 5.1%, which was the same as last year's full-year level. In terms of sectors, infrastructure investment increased by 8.8%, manufacturing investment increased by 7.0%, and real estate development investment decreased by 5.8%. Looking at the ownership of investment entities, state-owned holding investment increased by 10.0% year-on-year, while private investment increased by 0.6% year-on-year. Regarding consumption, in the first quarter, the total retail sales of consumer goods were RMB 11,492.2 billion, a year-on-year increase of 5.8%. Classified by consumption type, commodity retail sales were RMB 10,278.6 billion, an increase of 4.9%, and catering revenue was RMB 1,213.6 billion, an increase of 13.9%. In terms of imports and exports, in the first quarter, the total import and export of goods were RMB 9,887.7 billion, a year-on-year increase of 4.8%. Among them, exports were RMB 5,648.4 billion, an increase of 8.4%, and imports were RMB 4,239.3 billion, an increase of 0.2%. The trade surplus was RMB 1,409.0 billion after deducting imports and exports. In March, the total import and export volume was RMB 3,709.4 billion, a year-on-year increase of 15.5%. Among them, exports were RMB 2,155.2 billion, an increase of 23.4%, and imports were RMB 1,554.2 billion, an increase of 6.1%.
Regarding prices and people's livelihoods, based on the price index, in the first quarter, the national consumer price index (CPI) rose by 1.3% year-on-year. By category, food, tobacco, and alcohol prices rose by 2.9%, clothing prices rose by 0.7%, housing prices fell by 0.2%, household goods, and services prices rose by 1.2%, transportation and communication prices rose by 0.1%, education, culture and entertainment prices rose by 1.7%, and medical care prices rose by 0.9%, while prices of other goods and services rose by 2.7%. In March, the national consumer price index rose by 0.7% year-on-year and fell by 0.3% month-on-month. As for employment, in the first quarter, the average urban surveyed unemployment rate in the country was 5.5%, down 0.1 percentage point from the previous year's fourth quarter. In March, the national urban surveyed unemployment rate was 5.3%, down 0.3 percentage points from the previous month. In terms of residents' income, in the first quarter, the per capita disposable income of the national residents was RMB 10,87, a nominal year-on-year increase of 5.1%, which was 0.1 percentage point faster than the annual growth rate of the previous year, and a real increase of 3.8% after deducting price factors.
ANBOUND researchers suggest two factors to consider when analyzing China's economic situation and recovery trend in Q1 of this year. Firstly, macroeconomic data performance should be evaluated. Secondly, actual economic operation, including corporate performance, household income, and consumption status, should be analyzed to adjust macro data.
Overall, the 4.5% economic growth in Q1 was consistent with market expectations and institutions' 4%-5% range predictions. This can be considered moderate growth. The service industry growth rate was faster than industry and agriculture, consistent with the rapid rebound of some service industries after the pandemic control measures were lifted. The economic growth rate for this year is related to the 2022 base period. Although Q1 growth is lower than the 5% target for the whole year, the growth rate in Q2 is likely to exceed 5%. If there are no unforeseen circumstances, achieving the 5% target for the whole year should not be a problem. Goldman Sachs predicts that China's economic growth this year may even exceed 6%.
There is also an "imbalance" in China's economy in the first quarter, and some sectors are not as optimistic as the macro data suggests. (1) Signs of weak domestic industrial growth need to be taken seriously. In the first quarter, the added value of industrial enterprises above the designated size nationwide only increased by 3.0% year-on-year, which was 1.5 percentage points slower than the economic growth rate in the same period. In addition, the performance of private and foreign-funded industrial enterprises was relatively poor. ANBOUND has previously noted that in the two regions where China's industrial sector is most developed, namely the Pearl River Delta and the Yangtze River Delta, there have been phenomena such as a decrease in industrial enterprise orders and a large number of business closures. (2) China's inflation rate in March hit a new 18-month low, indicating the "imbalance" of China's economic recovery. Consumer confidence is not as strong as the macro data suggests. (3) There is also an imbalance in investment. The growth rate of fixed asset investment in the first quarter was 5.1%, the lowest growth rate in a year. It is worth noting that there is a significant gap between state-owned holding and private investment, with the former increasing by 10.0% year-on-year, while private investment, which accounted for 54.6% of investment in the first quarter, only increased by 0.6%. This gap shows that private investment confidence is rather low.
With central banks around the world raising interest rates to curb inflation, most countries and regions are facing a slowdown in growth. Against this backdrop, achieving a year-on-year growth rate of 4.5% in the first quarter is a good result for China. However, it should be noted that this was achieved under the full implementation of various stimulus policies to stabilize growth, and how long the role of macroeconomic policies in protecting growth will last remains to be seen. In order to maintain the growth target of 5% for 2023, the government is still vigorously promoting infrastructure investment, including the construction of subway lines and an increase in the number of 5G signal towers. At the same time, the recovery of consumer confidence and private enterprise confidence still needs time to be tested. In addition, under the special situation where the government is increasing its efforts, the gap between macroeconomic data and the performance of microeconomic entities still needs to be objectively considered. As Premier Li Qiang said, the vast majority of people are not concerned about how much GDP data has grown, but about whether their personal income has increased, whether prices have risen, and whether medical and education services are convenient.
Final analysis conclusion:
Against the backdrop of a slowdown in economic growth in many countries around the world, China's year-on-year GDP growth of 4.5% in the first quarter was a moderate economic achievement. However, macro data stimulated by policies cannot completely conceal structural and imbalanced issues. The key to sustaining China's economic growth is whether the country can restore its economic system, particularly by restoring confidence among enterprises and residents during the recovery period. This must be achieved while maintaining stable economic growth figures.