As per the official data released by China’s National Bureau of Statistics, the economy of China grew faster than the expectations, in the first quarter of 2024. Kavan Choksi Professional Investor points out that the Gross domestic product of China grew 5.3% compared to a year ago, in the January to March period. This growth was also faster than the 5.2% expansion in the fourth quarter of 2023 as well as the 4.6% growth expected by economists.
Kavan Choksi Professional Investor talks about the state of China’s economy in the first quarter of 2024
The GDP of China grew 1.6% in the first quarter on a quarter-on-quarter basis, in comparison to the expected 1.4% and a revised fourth quarter expansion of 1.2%. Beijing has set a 2024 growth target of around 5%. In part, the growth of China’s economy in the first quarter of 2024 was driven in part by external demand, with export volume growing by 14% year on year. The strong first quarter growth is likely to make the government more comfortable with its current policy stance.
As the Fed rate cut probability declines, the odds of a rate cut by People’s Bank of China [PBOC] is also expected to diminish. The PBOC recently set the fixing rate for the Chinese yuan against the United States dollar. This indicates that the government is likely to be willing to tolerate greater flexibility in the exchange rate. A weak currency makes the exports of a country less expensive and more desirable. Subsequent to the release of this data, the offshore yuan strengthened slightly, prior to retreating from its five-month high to trade at 7.2724 against the greenback.
Industrial output in China for March 2024 grew 4.5% year on year, missing expectations of 6%. On the other hand, retail sales grew 3.1% year on year, lower than expectations of 4.6%. The weaker-than-expected growth of industrial output in March can be associated with the sluggish utilization rate of industrial capacity. The slowing down of retail sales, however, was rather unsurprising. A policy push for equipment investment is expected in China, along with product renewal and replacement. This can continue to provide a temporary boost to domestic demand and keep the annual GDP target of around 5% achievable. Kavan Choksi Professional Investor further underlines that unemployment in major cities of China essentially inched down to 5.2%, thereby snapping a three-month streak of increases.
China saw a weak export and inflation data in the early days of April, with both sets of data coming in below expectations. The country’s real estate sector also continued to show weakness. In fact, property investments fell 9.5% year on year in the first quarter. Floor space of new commercial buildings sold in China was 226.68 million square meters, plunging 19.4% year on year As per recent data, even though the expansion in China’s economy was faster than forecast, it is at an “unbalanced” pace. Optimism in the economy is likely to be tempered by muted domestic demand, which can serve as the major weak point.
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