China’s growth beats estimates as production and investment rev up

China’s factory output and investment grew more strongly than expected at the start of the year, as Beijing targets an ambitious annual economic growth goal of around 5 per cent.

Industrial output rose 7 per cent in January-February from the same period a year earlier, the National Bureau of Statistics said Monday, faster a median estimate of 5.2 per cent rise by economists surveyed by Bloomberg. Retail sales increased 5.5 per cent, roughly in line with projections.

Growth in fixed-asset investment was 4.2 per cent in the first two months of the year, much stronger than a forecast 3.2 per cent gain. Investment in property development fell 9 per cent, remaining a major drag on the economy.

The urban jobless rate was 5.3 per cent, up from 5.1 per cent as of the end of December.

The surprisingly strong numbers are the latest evidence the world’s second-largest economy gained traction after policymakers ramped up stimulus late last year. They add to positive data showing China’s export growth exceeded expectations at the start of 2024.

Sustaining the momentum will be key to achieving Beijing’s growth target for this year, which is the same as 2023’s but harder to attain given a less favorable comparison base.

A persisting housing slump remains the biggest drag on the economy, and consumer and business confidence is still weighed by uncertain income outlook. Manufacturing overcapacity is growing, fueling tensions with trade partners and casting a cloud on the export outlook.

Consumer prices rose in February for the first time in five months, but the rebound was largely helped by a spending spree during the Lunar New Year holiday and is likely short-lived, analysts said.

Beijing has sweetened its fiscal package, embarking on a program to sell ultra-long special sovereign bonds in 2024 and in the years to come. It’s also fleshing out a plan to upgrade industrial equipment and boost household spending in consumer goods, pledging to help fund the program possibly worth hundreds of billions of yuan with budget money.

The People’s Bank of China has maintained a loose monetary policy stance, with governor Pan Gongsheng flagging a willingness to inject more liquidity to support growth when necessary.

However, the boost from the government’s on-balance-sheet spending will be offset by its separate campaign to rein in local debt risks. The central bank’s scope for more interest rate cuts is also limited by a wide yield gap with the US and low profit margins at Chinese banks.

The PBOC last week held the rate on its one-year policy loans steady and drained cash from the banking system via the tool for the first time since November 2022.

The National Bureau of Statistics doesn’t provide figures for January alone. It releases only combined readings for the first two months of each year to smooth out volatility from the Lunar New Year holiday, which shuts down most factories and businesses and can fall on either month in any given year.

Bloomberg