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China’s economy is growing faster again – but the crisis has not been overcome

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China’s economy is growing faster again – but the crisis has not been overcome

Chinese President Xi Jinping at the fourth plenary session of the National People’s Congress on March 11, 2023 in Beijing, China. Lintao Zhang/Getty Images

The Chinese economy grew by 5.3 percent in the first quarter, exceeding analysts’ expectations.

However, retail sales and industrial production fell short of forecasts in March.

China’s real estate market continues to struggle with a nearly 31 percent year-on-year decline in new home sales in the first quarter.

Since the pandemic, China’s economy has suffered from slowing growth – now the country is reporting robust results for the first quarter of 2024. The world‘s second-largest economy grew by 5.3 percent year-on-year in the last quarter, as that National Statistics Office announced. That exceeded the 5.2 percent growth in the fourth quarter of 2023 and the “Bloomberg“-Forecasts that were 4.8 percent.

“We had a good start,” Sheng Laiyun, deputy director of the NBS, told a news conference in Beijing. Industry is an important growth factor, contributing more than a third of growth in the first quarter.

Louise Loo, China economist at Oxford Economics, wrote in a note on Tuesday that China’s economy was also supported in the first quarter by consumer spending during the Lunar New Year in February. But despite the rosy numbers, a closer look at the data shows that the economy is still weak.

Retail sales rose 3.1 percent year-on-year in March, missing Bloomberg’s forecast of 4.8 percent growth. Industrial production was also behind forecasts in March at 4.5 percent, well below the six percent forecast by analysts.

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“Some indicators of March activity point to weakness after the Lunar New Year,” Loo said. In particular, the Chinese real estate market remains in a difficult situation given the debt crisis, and new home sales in terms of value fell by almost 31 percent in the first quarter compared to the previous year.

And: The data does not include Chinese youth unemployment, which reached a record 21.3 percent in June 2013, before Beijing changed the methodology for this metric and excluded full-time students.

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China is in a “two-speed economy”

The data released on Tuesday reflects China’s changing economic landscape. Traditionally, China’s economy has relied on growth in the real estate sector and low-wage manufacturing. Beijing is now trying to focus on three new drivers in the green sector: electric cars, solar cells and lithium-ion batteries.

This has led to a “two-speed economy” where some sectors are doing well – but still not enough to offset the massive collapse in the real estate sector, which has been around a quarter of China’s gross domestic product makes up.

“The recent economic recovery has been driven by exports. I think it’s a two-speed economy,” Raymond Yeung, chief China economist at the Australia and New Zealand Banking Group, said loudly Reuters. “Domestic demand is still weak, but exports are doing well.”

Yeung said he expects the Chinese economy to follow a similar path in the second quarter of the year. Oxford Economics’ Loo, meanwhile, expects headwinds to China’s growth in the second quarter as household spending normalizes and pent-up inventories come to market.

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China’s growth target for this year is around five percent.

Read the original article in English here.

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