Those concerns about the solidity of the recovery are borne out by the detail of the quarter’s activity.
Retail spending might have been up 10.6 per cent in the 12 months to March and 5.8 per cent for the quarter,but most of the increase was leisure and hospitality-related from a population that was released from the severe zero-COVID restrictions very late last year rather than on bigger ticket goods.
Industrial production was up 3.9 per cent in March,an acceleration from the 2.4 per cent growth experienced in the first two months of the year but fixed asset investment,which usually benefits from any government efforts to stimulate growth,slowed from 5.5 per cent in the first two months of the year to 5.1 per cent.
There’s also a noticeable (but probably not surprising) disparity between what China’s state-owned and private sector businesses are doing.
The state-owned businesses increased their investment (no doubt with encouragement and some financial support from Beijing,local governments and state-owned banks) by 10 per cent. The private businesses,which suffered last year not only as a result of the response to COVID but a broad crackdown on private enterprise,lifted their investment by only 0.6 per cent.
China’s property industry appears to be stabilising,at low levels,afterthe implosion that followed the authorities’ introduction of limits on developers’ leverage in 2020.
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Property investment (which includes housing,offices and retail stores) fell 5.8 per cent in the quarter,with home sales down 1.8 per cent and new housing starts 19.2 per cent.
Housing sales are just starting to pick up,but there is a massive over-hang of completed but unsold apartments that could weigh on the market for some years. On some estimates about a third of the apartments completed last year have yet to be sold.
The depressed state of the property market flows,not just into development and investment but all the sectors that service developments. Sales of household appliances,for instance,were down 1.4 per cent in March relative to the same month last year.
China also has a persistent unemployment problem. The urban jobless rate was 5.3 per cent in March but youth unemployment (16 to 24-year-olds) rose from 18.1 per cent in February to 19.6 per cent in March.
How China’s economy fares this year – whether it continues to growth at or better than the rate established in the first quarter – is important for the rest of the world and resource exporters like Australia in particular.
Without a broadening of the base of economic activity,particularly a structural increase in consumption and a strong return to growth in manufacturing,that will remain a challenge for the government and its Communist Party leadership and their ability to generate sustainable growth and maintain social stability.
The other challenge is the intensifying trade confrontation with the US and,to a degree,its allies. The US has progressively increased sanctions and restrictions designed to limit China’s access to semiconductors and other key inputs to advanced technologies.
China’s production of semiconductors was down almost 15 per cent in the first quarter,its production of microcomputing devices was down 21.6 per cent,mobile phones 6.7 per cent and integrated circuits 3 per cent.
The Biden administration’s efforts,with some help from its allies in Europe and Asia,to stymieChina’s ambition of challenging the US for global technology supremacy,an ambition that straddles both commercial and military objectives,appears to be increasingly effective.
Last month Xi foreshadowed a tightening of the government/party control of its science and technology (and financial) sectors.
While Beijinghas been cautious in injecting stimulus into an economy laden with debt,it has earmarked its technology sectors,and the semiconductor industry in particular,for major financial support over the next few years,planning to spend more than a trillion yuan ($220 billion) over the next five years to try to create self-sufficiency in chip production.
How China’s economy fares this year – whether it continues to growth at or better than the rate established in the first quarter – is important for the rest of the world and resource exporters like Australia in particular.
China has been the biggest contributor to global economic growth for the best part of two decades and especially since the 2008 financial crisis. Its levels of domestic investment in property and infrastructure drives global demand for commodities like iron ore,coal,LNG and copper.
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Its continuing reliance on exports,America’s trade and technology restrictions andthe “reshoring” and “friendshoring” of investment and activity that has been occurring since the pandemic and the fractures in the relationships between the US and China does mean,however,that its economic model and its growth rates are exposed and vulnerable to global influences,none of which look particularly positive at present.
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