The data is a reversal from January when key readings were pointing to a pronounced downturn
BEIJING • China’s economy rebounded through the first quarter (1Q), offering the government room for manoeuvre as trade negotiations with the US enter a crucial stage.
GDP rose 6.4% in the first three months from a year earlier — matching last quarter’s pace and beating economists’ estimates. Factory output in March jumped 8.5% from a year earlier, much higher than forecast. Retail sales expanded 8.7%, while investment was up 6.3% year-to-date.
The numbers are a reversal from as recently as January when key readings were pointing to a pronounced downturn.
US officials had previously touted such weakness as leverage in their push for a trade agreement.
“US President Donald Trump and other US officials spent much of the last year saying that China’s slowdown was making Beijing desperate for a deal,” said Michael Hirson, practice head for China and Northeast Asia at the Eurasia Group and a former US Treasury Department official.
“Now that China’s growth is recovering, Trump and team will be getting more questions from pundits and the media about whether his leverage is slipping away.”
While the better data isn’t likely to radically alter the course of negotiations that are already in their late stages, at the very least, they will change the atmosphere, Hirson said.
White House economic advisor Larry Kudlow, who in January described China’s economy as “very weak”, on Tuesday said the negotiations are making “very good progress”.
The exchange of tit-for-tat tariffs last year between the world’s two biggest economies on roughly US$360 billion (RM1.49 trillion) worth of each other’s goods had dragged on global growth and hammered sentiment before both governments agreed to a truce.
“We expect the economy to continue to stabilise in the 2Q, but believe continued policy support is warranted. Government-led infrastructure spending has kick started the recovery. What’s needed still — a turnaround in the private sector to drive self-sustaining growth,” said Chang Shu and Qian Wan of Bloomberg Economics.
Car production grew in March for the first time since September, showing manufacturers might be more optimistic after the sales slump last year.
Aluminium and steel output also reached records in the 1Q as producers ramped up operations amid prospects for better demand in the world’s biggest commodities consumer.
The robust data stoked scepticism as critics said authorities are again relying on cheap credit to stoke lending and demand.
Investment by state-owned firms quickened to 6.7% and slowed for private firms to 6.4%, underscoring the government’s role in supporting growth.
“I think policymakers who were choosing ‘deleveraging’ over the past two years are now back to increasing leverage,” said Alex Wolf, head of investment strategy at JPMorgan Private Bank in Asia.
It wasn’t all good news either: The surveyed jobless rate remained over 5% for a third month and the nominal growth rate, which is unadjusted for price trends, decelerated. That means slower corporate profits.
On top of those, some other factors raising concerns about the sustainability of the recovery are:
• A sharp slowdown in fixed-asset investment by manufacturers;
• The slowest services sector growth since 1992;
• The pick-up in state investment, probably on the back of efforts to spend more of the budget earlier in the year. As the budget funds run down through the rest of the year, that investment may taper; and
• Polluting sectors such as rubber, plastics and mining saw big increases in output, suggesting relaxed pollution controls.
The reports led some economists to conclude that the data mean policymakers will scale back stimulus measures that had been penciled in for the year.
“The 1Q and March data confirm a cyclical turning point,” Morgan Stanley economists including Robin Xing in Hong Kong wrote in a note.
Reserve-ratio cuts “could be fewer amid strong fiscal support. We expect an economic upturn in the 2Q to 4Q as fiscal easing fully kicks in, trade tensions ease and consumer confidence normalises”.
For the global economy and for China’s trade negotiators, that’s a marked turnaround from the gloomy outlook seen just a few months ago.
“It strengthens China’s hand,” said Cui Li, head of macro research at CCB International Holdings Ltd in Hong Kong.
“With the strong data, it’s easier to make a win-win argument that China will help the global economy to achieve a soft landing, and everyone is better off without the uncertainties as global growth slows.” — Bloomberg