China’s economy grew more than expected in the first three months of the year, new data show, as China built more factories and exported large amounts of goods to combat a severe real estate crisis. and sluggish household spending.
To spur growth, China, the world’s second-largest economy, has turned to a familiar tactic: heavy investment in its manufacturing sector, including a slew of new factories that have helped boost global sales of solar panels, electric vehicles and other products.
But China’s export bet has worried many foreign countries and companies. They fear that a flood of Chinese shipments to distant markets could damage their manufacturing industries and lead to layoffs.
On Tuesday, China’s National Bureau of Statistics said the economy grew 1.6 percent in the first quarter over the previous three months. When projected out for the full year, the first quarter data indicates that China’s economy is growing at an annual rate of about 6.6 percent.
“The national economy has made a good start,” said Sheng Laiyun, deputy director of the statistics bureau, while warning that “the foundation for stable and orderly economic growth is not yet solid.”
Retail sales rose at a moderate pace of 4.7 percent compared to the first three months of last year, and were particularly weak in March.
China needs robust consumer spending to lower persistently high youth unemployment and to help companies and households cope with extremely high debt levels.
Economists at the Federal Reserve Bank of New York warned last month that China is experiencing a “sugar high” of factory construction fueled by heavy bank lending.
For the year, China has set a growth target of around 5 percent, a goal that many economists regard as ambitious, although some have recently upgraded their forecasts. Last year, China’s economy grew by 5.2 percent.
Output was 5.3 percent higher in the first three months of this year than in the same period last year, the statistics bureau announced Tuesday, beating economists’ forecasts.
A brisk pace of factory investments, which rose 9.9 percent from a year ago, is central to China’s growth. Strong exports earlier this year also helped.
The value of exports rose 7 percent in dollar terms in January and February from a year earlier, and 10 percent when measured in China’s currency, the renminbi. But the actual contribution from exports to the country’s economy is greater, as falling prices have obscured the full extent of China’s export gains.
Guo Tingting, a vice minister of commerce, told a news conference last month that the physical volume of exports climbed 20 percent in January and February compared with last year. Exports weakened somewhat in March, however.
With street festivals and other activities, the government has encouraged families to spend more even as many in China have boosted their savings to offset a recent slump in the value of their apartments.
Domestic tourism and box office ticket spending both increased during the Lunar New Year in February, easily surpassing pre-Covid-19 pandemic levels. Smartphone sales have also climbed – although not for Apple – as Chinese consumers increasingly choose local brands.
The wide fall in prices, a phenomenon that may be rooted in deflation, continues to be a problem, especially for exports and at the wholesale level. Chinese companies are scrambling to lower export prices and win a bigger share of global markets, even if it means huge losses.
In top-level meetings earlier this month with Chinese officials, Treasury Secretary Janet L. Yellen warned that flooding markets with exports would disrupt supply chains and threaten industry and work. Chancellor Olaf Scholz of Germany expressed similar concerns during a visit to China, though he also warned against protectionism in Europe.
Meanwhile, China is experiencing a deep slump in housing construction and apartment prices. Building homes — and the production of steel, glass and other materials for them — has been the biggest driver of growth in China for years.
But sales of new apartments have fallen somewhat since the start of 2022. Few construction projects are starting now, as dozens of insolvent or near-insolvent developers struggle to finish the homes they promised to consumers. Investment in real estate projects fell 9.5 percent in the first quarter from a year earlier.
Chinese officials blame weaknesses in China’s economy on high foreign interest rates created by the Federal Reserve to fight inflation in the United States. Those rates have made it more attractive for Chinese families and companies to move money out of China, where interest rates are low, to foreign countries where rates are higher.
“The negative impact of the high interest rate environment on the economy continues,” said Liu Haoling, the president of the China Investment Corporation, which is China’s sovereign wealth fund. He spoke in late March at the China Development Forum, a meeting in Beijing of policymakers and executives.
Chinese manufacturing, bolstered by years of policy directives and financial support from Beijing to local governments and companies, has made the country’s goods the cheapest in the world. The US government revealed last week that average prices for imports from China fell 2.6 percent in March compared to a year earlier.
China has ordered companies to invest more in research and development, hoping a wave of innovation will spur economic growth.
The country also needs factories to pursue more automation. “By 2025, we will have a new type of industrialization,” said Jin Zhuanglong, the minister of industry and information technology, at the China Development Forum.
Many Chinese households have borrowed heavily to invest in apartments and are responding to falling house prices by cutting their spending. As a result, China has increasingly relied on exports to sell its rapidly increasing industrial output.
“Chinese companies, in a wide range of sectors, are now producing more than domestic consumption can absorb,” the Rhodium Group, a consulting firm, said in a report in late March.
People’s cautiousness in spending is something that Li Zhenya sees every day. He runs Izakaya Jiuben, a Japanese restaurant in the Beijing neighborhood of Wangjing, once home to some of China’s biggest tech companies.
A few years ago, workers lined up outside the restaurant, pouring into nearby offices to spend their hard-earned money on short breaks between long shifts. These days, many of the restaurant’s seats are empty at lunch and dinner.
“People’s desire to consume is not that high now,” said Mr. Li and Jiuben. The restaurant, he said, is taking in about $2,156 a day in revenue, about half of its sales a few years ago.
“I was losing money running the restaurant,” he said.
Jiuben is on the fourth floor of Pano City Mall, where restaurants advertising Korean, Japanese and Chinese food run alongside empty storefronts. Some areas looked abandoned: The lights were off but a pile of takeaway boxes sat next to the till, lamps still hanging or chairs and tables intact.
Centered around three curved, pebble-like buildings designed by Zaha Hadid, the Wangjing neighborhood was once a hub of activity for the capital’s busiest workers. Restaurants and shops have benefited from the presence of companies such as Alibaba, JD.com and Meituan.
“The lights used to be on at night, but now at least half of the lights are off,” Mr. Li said.
A government crackdown starting in 2020 has forced companies to cut jobs. Others left Wangjing. With Covid-19 restrictions that have frozen the neighborhood for weeks at a time, it has been difficult for small businesses in Wangjing to recover.
“The epidemic has led to a cautious consumption,” said Kou Yueyuan, the owner of Smoon Bakery, across the street from Pano City. “Customers are obviously quite price sensitive,” said Ms. Kou.
Ms. started Kou started her business more than eight years ago, selling baked goods like bitter melon bagels and ube mochi twists. Now he no longer emphasizes developing new baked goods with different flavors. Instead, he focused on keeping costs low so the bakery could offer cheaper prices.
Li You contributed research.
