China's Economy Rebounds From Covid Slowdown As Consumer Spending And Investment Pick Up

China’s retail sales rose 3.5 per cent from the same period last year, figures from the National Bureau of Statistics showed, in line with forecasts and reversing from a 1.8 per cent drop in December

Economic activity in China strengthened in the first two months of 2023 as investment picked up and consumer spending recovered after the ending of Covid curbs, news agency Bloomberg reported.

According to the report, China’s retail sales rose 3.5 per cent from the same period last year, figures from the National Bureau of Statistics showed Wednesday, in line with forecasts and reversing from a 1.8 per cent decline in December. Industrial output growth accelerated to 2.4 per cent in the two-month period, slightly below expectations, the news agency reported.

Fixed-asset investment climbed 5.5 per cent during the two-month period, better than the 4.5 per cent estimate and 5.1 per cent growth for the whole of last year. The jobless rate rose to 5.6 per cent following the Lunar New Year holidays, with the rate for young people jumping to a six-month high of 18.1 per cent.

China abruptly dropped its Covid Zero strategy in December, leading to a surge in infections through January. Cases peaked earlier than expected, though, prompting people to travel and spend again and providing a boost to the services sector. Factories also benefited as logistics bottlenecks and restrictions ended. "The economy’s circulation is increasingly smooth, production and demand improved markedly, and the economy has stabilised and rebounded," the NBS said in a statement. "But the external environment is increasingly complex, and the problem of insufficient demand is still prominent."

The bureau usually combines the data releases for the two months of January and February to avoid distortions from the Lunar New Year holiday, which can fall in either month depending on the year.

A breakdown of the retail data shows sales of Chinese and western medicine rose the fastest, by 19.3 per cent in the two month period. Sales of petroleum and its products grew 10.9 per cent and catering rose 9.2 per cent. Investment picked up as local governments boosted sales of special bonds in the first two months of the year to front-load spending in infrastructure.

China’s first comprehensive set of "hard" data for the first two months of the year show the recovery is well underway — but isn’t as eye-popping as early survey data suggested. Retail sales swung back to growth, and industrial output accelerated. But the biggest driver was infrastructure investment — raising the risk that the growth spurt is overly dependent on government support.

The rebound will be encouraging news to the top leadership, who have made economic growth a top priority this year. Beijing set a modest target for gross domestic product growth of around 5 per cent for this year, signalling it will avoid any big stimulus through infrastructure investment or the property market. However, a fairly ambitious job creation goal of "around 12 million" suggests policy will remain supportive.