Economic Watch: China’s economy firmly on recovery track as market expectations improve

Published: April 20,2023

Multiple signs indicate that China’s economy has been recovering with stronger impetus and improved market confidence since the beginning of this year, and analysts expect more growth potential to be unleashed in the coming quarters.

Both foreign trade and credit growth beat market forecasts in the first quarter, and manufacturing activity and consumption continued to pick up, official data has revealed.

As the impact of COVID-19 subsided significantly, economic stabilization policies were deployed in advance, China’s economy continued to recover in the first quarter, and market confidence and expectations improved significantly, according to the Bank of China Research Institute.

Data from the General Administration of Customs last week showed that foreign trade has been improving over the past three months. After dropping 7 percent year on year in January due to the Spring Festival holiday, it recovered to an expansion of 8 percent in February before surging 15.5 percent in March.

In March this year, the export growth rate of the world’s major foreign trade powers continued to decline. In contrast, China’s exports still achieved contrarian growth despite a high base in 2022, and the growth rate far exceeded market expectations, said Wang Jing, a researcher at the Bank of China Research Institute.

Wang said that the growth was mainly thanks to the release of previous order backlogs, the return of export orders for labor-intensive products, and the strong competitiveness of new products.

As for the financial sector, the growth of yuan-denominated loans amounted to 10.6 trillion yuanduring the first quarter of this year, up 2.27 trillion yuan from a year ago, while newly added social financing came in at 14.53 trillion yuan during the first quarter, an increase of 2.47 trillion yuan from the same period last year.

“The yuan loans growth hit a record high in the first quarter of this year as sustained economic improvement led to a rebound in corporate loan demand,” said Wen Bin, the chief economist of China Minsheng Bank.

Zhou Maohua, an analyst at the China EverbrightBank, attributed the strong financial performance to the recovery of business and household confidence, the continued expansion of business investment, and the recovery of household consumption and housing demand.

China’s manufacturing activity maintained its expansion for three consecutive months by March, with the purchasing managers’ index (PMI) for China’s manufacturing sector hitting 51.9, and the PMI for the non-manufacturing sector reached 58.2.

The average manufacturing PMI in the January-March period reached a vigorous 51.5, which was close to the level seen in the fourth quarter of 2020, according to Zhang Yu, chief macro analyst at Hua Chuang Securities.

Market confidence also improved remarkably. The business outlook index came in at 55.5, with optimism shared by all surveyed industries, according to the National Bureau of Statistics.

Looking back at the first two months, data on retail sales, investment growth, foreign investment and employment have all maintained stability. In particular, retail sales increased 3.5 percent year on year, reversing the declines seen in the previous three months.

Apart from the encouraging data, vitality was also seen in China’s economic activities. A real-time big data platform developed by Baidu Maps showed that the average passenger flow index of key national passenger transport hubs, as well as the population flow and congestion index of key tourist attractions and popular business districts, are gradually heating up.

Last week, the third China International Consumer Products Expo held on southern China’s island province of Hainan showcased the recovery momentum of the consumer market. The number of participating brands increased to 3,300 from 2,600 in the first session in 2021, while visitors increased to some 320,000 from 240,000 in the first session.

The 133rd China Import and Export Fair, also dubbed the Canton Fair, which was held offline for the first time since the COVID outbreak with a record scale, kicked off on Saturday, welcoming purchasers from over 220 countries and regions.

As for expectations of this year’s economic recovery, Xu Chun, director of the Changjiang Securities research institute, believes that 2023 will be a year of moderate recovery, and that the 5 percent GDP growth target for the whole year can be achieved smoothly.

With the reopening of various locations since the beginning of the year, pent-up demand has been fully released, Xu said.

Zhang Liqun, a researcher at the Development Research Center of the State Council, said that consumption and investment in infrastructure have been strengthened, government investment has enhanced investment across society, and enterprise confidence has gradually recovered.

“But still, great efforts are needed to consolidate the economic recovery, especially in dealing with the triple pressures of demand contractions, supply shocks and weakening expectations. Efforts are also needed to focus on expanding domestic demand, ensuring supply and stabilizing prices,” Zhang said.

Xinhua