China economy off to strong start in 2019 as stimulus steps offset trade war impact

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China’s economy is off to a robust start this year, defying fears of a sharp slowdown, with Beijing’s pro-growth efforts successfully offsetting the effects of the trade war with the United States.

China’s gross domestic product (GDP) expanded 6.4 per cent in the first quarter compared to a year earlier, the National Bureau of Statistics reported on Wednesday, beating analysts’ expectations of 6.3 per cent growth and remaining at the top end of Beijing’s target growth range of 6.0 to 6.5 per cent for this year.

All major indicators released Wednesday – industrial production, fixed-asset investment, retail sales and the urban jobless rate – showed improved performance from previous months, with the latter two coming in stronger than expected.

Industrial production, for instance, expanded 8.5 per cent in March from a year earlier, the strongest growth since July 2014, against expectations of a 5.9 per cent gain.

The upbeat data comes as Beijing and Washington appear to be entering the final stages of their negotiations to end the trade war and offers fresh evidence that the Chinese economy may have already reached its low point and started to rebound.

“There is no denying that China’s economy ended the first quarter on a stronger note,” Julian Evans-Pritchard, senior China economist at Capital Economics, wrote in a note. “China’s economy will bottom out before long if it has not already.”

Signs of improvement were broad-based from the data released by Beijing’s statistics bureau.

Private sector fixed-asset investment, a gauge of confidence of Chinese private manufacturers and entrepreneurs, rose 6.4 per cent in the first quarter compared to a year earlier, while overall fixed-asset investment grew 6.3 per cent, up from 6.1 per cent in January and February.

Retail sales growth, a barometer of consumer spending, accelerated to 8.7 per cent in March from a year earlier, above expectations of an 8.4 per cent gain.

The decline in automobile output, one of the most prominent signs of recent Chinese economic weakness, abated considerably – automobile output in March fell only 2.6 per cent, an improvement from the 5.3 per cent fall in the first two months of the year (January and February data were combined to reduce the distortions caused by the Lunar New Year). However, the sector remains in general decline.

The surveyed urban jobless rate fell from 5.3 per cent in February to 5.2 per cent in March.

The restored confidence from factory owners and consumers came in tandem with a more upbeat mood among Chinese stock investors and homebuyers. The benchmark Shanghai Composite Stock Index closed at a 13-month high on Wednesday as over three million new investors opened accounts to trade A-shares in March alone, while average new home prices in 70 major Chinese cities accelerated last month.

Output of crude steel surged 10 per cent in March while cement output shot up 22.2 per cent, reflecting strong demand spurred on by China’s infrastructure spending spree.

“From Beijing’s perspective, this set of data should show that the policy reset in mid-2018 is starting to yield results,” Tai Hui, a strategist at JP Morgan Asset Management in Hong Kong, wrote in a note.

The Chinese leadership decided last July to shift the economic priority from debt reduction to growth stabilisation as the tariffs imposed on Chinese exports by US President Donald Trump disrupted economic activity and dampened investor confidence.

After months of stimulus spending and monetary easing – China’s financial system pumped a record 8.2 trillion yuan (US$1.22 trillion) in credit into the economy in the first quarter alone – short-term concerns that China’s economy may lose steam quickly have largely dissipated, despite the long-term restrains from an rapidly ageing population and a huge, and growing, mountain of debt.

Signs of renewed optimism in the Chinese economic outlook abound.

The International Monetary Foundation revised up its GDP forecast for China this year to 6.3 per cent, citing the expected impact of the government’s economic stimulus programme.

Ding Shuang, chief Greater China economist at Standard Chartered, said growth in the second quarter could well be stronger than in the first quarter.

However, while the March data showed that the direct impacts from Trump’s punitive tariffs are manageable for Beijing, Ding warned that an agreement to end the trade war has yet to be signed, and said this remains “the largest uncertainty for the Chinese economy” going forward.

But if a trade deal is reached and the economic bottoming-out is confirmed, Beijing may decide to fine-tune its domestic policy, including scaling back fiscal expenditures, he added.

Additional reporting by Cissy Zhou

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