China’s consumer spending returned to growth in the first two months of 2023, in an early sign of an economic recovery that the government warned remains fragile after years of pandemic restrictions.
Retail sales grew 3.5 per cent year on year in the first two months of 2023, compared with declines in each of the previous three months. Activity in the debt-stricken property sector also pointed to a positive trajectory.
The data, part of the first comprehensive overview of activity since Beijing ended its sweeping pandemic restrictions, pointed to a mixed economic picture, with the recovery momentum threatened by falling global demand for Chinese exports and a lingering property sector slowdown.
China’s National Bureau of Statistics warned in a statement that the economic recovery’s foundation was “not yet solid” and said the government would take measures to boost domestic consumption.
Chinese policymakers last week set an economic growth target of 5 per cent for 2023, an unambitious figure that analysts suggest could have been designed to avoid missing expectations. China’s economy expanded just 3 per cent in 2022.
Meeting the target would still “not be an easy task”, new premier Li Qiang warned on Monday at the closing of China’s annual rubber-stamp parliament, as the country emerges from the economic malaise of the pandemic.
The retail sales data, which was in line with expectations, was closely watched given the impact on consumption of China’s zero-Covid system of lockdowns and mass-testing. Retail sales declined over the whole of both 2020 and 2022 — the first annual falls since the late 1960s.
“We always felt that the recovery would be consumer-led, and I think we’re beginning to see the start of that,” said Louise Loo, lead China economist at Oxford Economics, adding that while momentum had picked up, it was still relatively weak.
“The recovery has begun in earnest, but it hasn’t really been the booming reopening boost that people have been expecting,” she said.
China’s reopening started in December last year and has taken place gradually against a backdrop of nationwide outbreaks, with the government ending inbound quarantine rules in January and only this week permitting foreign tourists to enter the country again.
Other data for the first two months of the year were varied. Fixed-asset investment rose 5.5 per cent against a year earlier, outperforming expectations. Industrial output, a growth driver in the early stages of the pandemic, added 2.4 per cent year on year. Urban unemployment was slightly higher at 5.6 per cent.
“Compared to other countries post-pandemic, the recovery in China is relatively weak,” said Ting Lu, chief China economist at Nomura.
Metrics across the property sector, which has been gripped by a liquidity crisis since late 2021, with a wave of developers defaulting on their debts, generally showed improvement compared with the end of 2022.
The statistics bureau said overall property investment declined 5.7 per cent year on year in January and February — a slower pace than the 12.2 per cent decline in December. Property sales by floor area fell 3.6 per cent year on year, stronger than a 31.5 per cent contraction in December, while new construction starts by floor area contracted 9.4 per cent, up from 44.3 per cent.
Manufacturing and infrastructure investment grew 8.1 and 9 per cent, respectively.
Even within the positive retail sales data, various components indicated an uneven recovery. Lu pointed to a 9.4 per cent year-on-year contraction in car sales in January and February, compared with growth of 4.6 per cent in December.
China reports economic data for January and February together to account for disruptions during the lunar new year holiday.
Lu said further weakness would weigh on the recovery, but forecast better overall retail sales figures in March due to the disruption that China’s Covid exit wave of infections had to January data.