[Global Focus] What is the Effect of With Corona? ... Eyes on China's Q1 Report Card

China is receiving its first economic report card since transitioning to a with-COVID-19 policy. The key interest lies in whether the Chinese economy is showing signs of recovering from the economic slump caused by the spread of COVID-19 and related containment policies over the past three years. While positive forecasts are emerging domestically and internationally regarding the first quarter economic results this year, low inflation and weak durable goods consumption are tempering premature expectations for reopening.

On the 18th, the National Bureau of Statistics of China will release various economic indicators including first-quarter gross domestic product (GDP) growth rate, industrial production, retail sales, fixed asset investment, and unemployment rate.

The GDP growth rate forecast, which most intuitively reflects whether the economy is normalizing after with-COVID-19, is widely expected to be around 4%. According to a survey by Chinese economic media Caixin of 12 domestic and international institutions, experts forecast the first-quarter growth rate to be between 3.0% and 4.9%, with an average of 3.8%. The Caijing Research Institute under China’s leading economic media Caijing also surveyed domestic and international institutions and found the average first-quarter growth rate to be 3.99%. Bloomberg News, through its expert survey, projected a 3.9% growth rate.

원본보기 아이콘

Compared to the global economic slowdown trend, a growth rate around 4% is relatively robust. According to Caixin, the macro research report by China International Capital Corporation (CICC) raised its first-quarter forecast from the previous mid-3.5% range to around 4.0%, supported by the rapid recovery of the service industry. It cited two main drivers of economic recovery: the lagged effects of last year’s government policies and the rebound in domestic demand following the removal of COVID-19 uncertainties. Lu Ting, Nomura Securities’ chief China economist, predicted a relatively low 3.6% among Caixin’s survey respondents but stated, "Demand suppressed by containment policies will rebound and lead economic growth." In the Caijing Research Institute survey, Ding Shuang, chief economist at Standard Chartered Bank, raised the first-quarter forecast from 3.5% to 4.9%.

However, there are assessments that economic momentum somewhat weakened in March compared to February. Wang Tao, UBS’s chief China economist, observed a slowdown in growth in March relative to February, particularly noting declines in new vehicle deliveries, sales, and production compared to the previous month. He also attributed this partly to the disappearance of the Chinese New Year (Chun Jie) seasonal effect in March. Changcheng Securities forecast a 4.3% rebound in first-quarter GDP growth, with government consumption and private capital contributing 0.8 and 2 percentage points respectively.

Foreign forecasts are not significantly different. Bloomberg News, through an economist survey, projected 3.9% growth for China’s first quarter, noting that this still falls short of the government’s annual target of around 5.0%.

The International Monetary Fund (IMF) maintained its GDP growth forecast for China at 5.2% in its World Economic Outlook (WEO) released on the 11th. It predicted that increased demand for consumer goods in China would benefit neighboring countries, especially those with large trade volumes with China, and that China’s consumption rebound would raise other countries’ economic growth rates by an average of 0.6 percentage points. In related forecasts, the IMF lowered South Korea’s growth rate from 1.7% (January) to 1.5%, citing semiconductor industry downturns and domestic demand weakness.

A retail store located in Shenzhen, Guangdong Province, China, is selling groceries. (Photo by Kim Hyun-jung)

원본보기 아이콘

Leading indicators that can gauge China’s economic situation are showing positive trends. First, the flow of money is healthy. New yuan loans in March reached 3.89 trillion yuan, more than double the previous month’s 1.81 trillion yuan. Money supply (M2) increased by 12.7% year-on-year, and total social financing rose by 9.9%. Notably, household loans, mainly mortgage loans, surged to 1.24 trillion yuan, nearly six times the previous month’s 208.1 billion yuan. This suggests an expected improvement in real estate sales, which had previously constrained China’s economic growth.

According to Zhongxin Securities, as of the end of last month, the blast furnace operating rate of 247 steel mills in China increased by 6.35 percentage points year-on-year, and crude steel production in March rose by 0.45% compared to the same period last year. Qingchang, chief macro analyst at Zhongxin Securities, evaluated, "The recovery of domestic economic circulation is accelerating, and the resumption of business and production by companies is leading to a rebound in industrial production."

China’s trade balance also showed a robust trend, far exceeding initial expectations. Experts had forecast an average export growth rate of -6.4% for March, but the actual figure was 14.8%. The trade surplus was also expected to be around $39.81 billion (approximately 52.2784 trillion won), but the actual figure was $88.19 billion, more than double the forecast.

However, not all indicators are moving toward recovery. The lower-than-expected inflation level indicates that market demand has not fully recovered to pre-COVID-19 levels. China’s consumer price index (CPI) in March rose 0.7% year-on-year, below the expert forecast of 1.0%. The producer price index (PPI) recorded a 2.5% decline, matching expectations. This marks the sixth consecutive month of negative PPI since October last year (-1.4%).

Hong Kong’s South China Morning Post (SCMP) commented on March’s inflation trend, stating, "China’s falling producer prices and slowing consumer price increases raise concerns about deflation risks and insufficient demand," and warned that "the world’s second-largest economy is sounding an alarm at a critical stage of post-COVID-19 recovery." A government advisor who requested anonymity told SCMP that China’s inflation this year might remain at 2%, below the government’s target of 3%.

Durable goods consumption remains sluggish. According to the China Passenger Car Association (CPCA), 4.261 million passenger cars were sold in China in the first quarter, a 13.4% decrease year-on-year. Experts attribute this largely to ongoing price competition in the automobile industry, which has led consumers to postpone purchases. The slow recovery of China’s employment market is also hampering economic normalization. As of February, the youth unemployment rate for ages 16 to 24 soared to 18.1%.

There are also voices pointing out that China’s mid- to long-term structural economic problems are intensifying. SCMP assessed, "China’s economy faces long-term headwinds such as demographic challenges, and efforts to develop the digital economy and innovative technologies are being affected by U.S. semiconductor export bans."

© The Asia Business Daily(www.asiae.co.kr). All rights reserved.