China’s economy showed promising signs of recovery in the first quarter of 2023, with a reported 4.5% growth in gross domestic product (GDP) compared to the previous year. This increase, announced by the National Bureau of Statistics, surpassed economists’ expectations of 4% growth, reflecting a surge in consumer spending following the lifting of strict pandemic restrictions that had been in place for three years.
The rebound in consumer activity was particularly notable in March, when retail sales soared by 10.6% year-on-year, marking the highest growth rate since June 2021. Overall, retail sales increased by 5.8% during the first quarter, driven largely by a boom in the catering sector. Louise Loo, the China lead economist for Oxford Economics, suggested that rising consumer confidence and the ongoing release of pent-up demand indicate that the recovery could continue to gain momentum.
Industrial production also demonstrated a positive trend, rising by 3.9% in March, an improvement from the 2.4% growth observed in the earlier months of the year. However, despite these encouraging figures, challenges remain. Private investment stagnated, with fixed asset investment from the private sector growing a mere 0.6% from January to March. This lack of growth reflects a cautious outlook among private sector employers, particularly in light of a significant rise in youth unemployment, which reached 19.6% in March—just shy of the record high of 19.9% recorded in July 2022.
The youth unemployment crisis underscores broader economic concerns, as many young people struggle to find jobs in a recovering economy. Analysts warn that the job market could face additional pressures as millions of new graduates enter the workforce later this year. The Chinese government has set a GDP growth target of around 5% for 2023 and aims to create 12 million new jobs, but achieving these goals may prove challenging given the current economic landscape.
While some experts have praised the recent economic growth, others caution that it may be artificially inflated by a "backloading" of activity that was delayed due to pandemic restrictions. Raymond Yeung, chief economist for Greater China at ANZ Research, noted that if adjustments were made for this delayed activity, the actual GDP growth for the first quarter might be closer to 2.6%.
The property sector, a crucial component of China’s economy, continues to struggle, with investment in real estate declining by 5.8% in the first quarter. This downturn is compounded by falling property sales, which decreased by 1.8% during the same period. The government has attempted to bolster investor confidence through various measures, but these efforts have largely failed to inspire optimism among private entrepreneurs.
As China moves forward in its recovery, the International Monetary Fund has upgraded its growth forecasts, predicting a 5.2% increase in GDP for 2023 and 5.1% for 2024. However, the road ahead will require careful navigation of existing economic pressures, particularly in the labor market and among private investors, to ensure sustainable growth in the coming months.