China just posted its strongest quarterly growth on record as the world’s second-largest economy continued its strong recovery from the coronavirus pandemic.
GDP growth of 18.3% year-on-year in the first quarter was the strongest since China began keeping records in 1992, and was driven by a sharp increase in retail sales, industrial production and capital investment.
The big jump mirrors the deep fall in activity at the start of 2020, but it keeps China on track for growth of between 8% and 9% in 2021, economists said, far ahead of the Chinese government. official target of more than 6%.
“We are fully confident that we can maintain the current recovery momentum throughout the year,” said Liu Aihua, spokesman for the National Bureau of Statistics. at a press conference in Beijing on Friday.
First-quarter retail sales jumped 34% from a year ago, while capital investment in urban areas rose nearly 26%. Industrial production increased by more than 24%.
“Growth remains quite strong at this point as Covid losers such as consumption and [capital expenditures] are catching up,” Larry Hu, chief China economist for the Macquarie Group, said in a research report on Friday.
Retail sales, which were hit hard last year due to the lockdown, improved because Beijing eased travel restrictions after the Lunar New Year holiday in February, he added. Investments in manufacturing and infrastructure have also accelerated.
Trade also provided a strong boost. Customs statistics released earlier this week showed imports jumped more than 38% last month in US dollars from a year earlier, a sign that demand in China is picking up. Exports increased by almost 31%.
Hu said import strength was broad-based, indicating a “recovery in consumption.” And Beijing should easily hit its target of over 6% growth for 2021. “Growth could easily jump to 8-9% with the low base,” Hu added.
Nomura analysts predicted on Friday that China’s GDP would grow 8.9% in 2021.
Last month, Premier Li Keqiang said the government had set the growth target for this year at “more than 6 percent”. That’s more than enough to meet President Xi Jinping’s long-term goal for the economy, though still less aggressive than some observers have said they’d like to see. Some analysts said the cautious target indicates the government is taking into account the risk of Covid-19 making a comeback.
Earlier this month, the International Monetary Fund raised its growth estimate for China to 8.4% for this year, saying that “effective containment measures, a strong public investment response and liquidity support from the central bank” had facilitated the country’s recovery.
The recovery “stabilizes”
But some analysts say the outlook for the rest of this year is less certain.
Chaoping Zhu, global market strategist for JP Morgan Asset Management, said quarter-over-quarter growth is a better indicator of the current strength of China’s economy.
GDP grew just 0.6% from the last quarter of 2020. That’s the slowest pace since China started recovering from the pandemic. In the first quarter of last year, the economy shrank by a record 9.7% from the previous quarter, before rebounding when the government eased restrictions. From the second to the fourth quarter of 2020, the economy grew by 11.6%, 3% and 2.6% respectively, quarter by quarter.
“It shows that China’s economy has already normalized,” Zhu said. wrote in a note on Friday.
Julian Evans-Pritchard, senior China economist at Capital Economics, also pointed out that the 18.3% rise is largely skewed by weak base effects.
“This tells us little about the current momentum in the economy, as it reflects a much weaker basis for comparison compared to last year’s Covid-19 downturn,” he said. “With the economy already above its pre-virus trend and policy support being withdrawn, China’s post-Covid rebound is stabilizing.”