China Economic Pickup Tops Forecasts Before Tariff Pain Deepens
China Economic Pickup Tops Forecasts Before Tariff Pain Deepens ·Bloomberg
Bloomberg News
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(Bloomberg) -- Consumption and industrial production in China grew faster to start the year, in an upswing that exceeded forecasts as Donald Trump’s tariffs threaten exporters in the world’s largest trading nation.
Retail sales increased 4% in January-February from the same period a year earlier, the National Bureau of Statistics said Monday, exceeding economist forecasts and accelerating from a 3.7% gain in December. Industrial output rose 5.9%, higher than the median estimate in a Bloomberg survey of analysts. Growth in fixed-asset investment picked up to 4.1%.
The retail data is in a “nice and comfortable range,” Helen Qiao, chief economist for greater China for Bank of America Global Research, told Bloomberg Television. “That probably implies that further policy stimulus is still warranted. At the same time, it is not too weak that people would worry before the policy kicks in.”
The figures provide the most comprehensive snapshot yet of how the world’s second-biggest economy has fared since Trump embarked on a new trade war. China combines data for January and February to smooth out distortions caused by the irregular timing of the Lunar New Year holiday.
“The national economy maintained the new and positive development momentum,” the statistics bureau said. But it warned that “the external environment is increasingly complex and severe, the domestic effective demand is weak, some enterprises face difficulties in production and operation, and the foundation for sustained economic recovery and growth is not strong enough.”
So far, traders weren’t too impressed with the seemingly upbeat data. Chinese stocks traded in a narrow range, with the benchmark CSI 300 Index 0.1% higher.
Chinese 10-year bonds held losses, with the yield up four basis points to 1.87%, set for the highest in around a week. The offshore yuan pared gains, after the central bank kept its tight grip on the daily reference rate for the currency.
“The market reaction has been underwhelming” to the “mixed picture” painted by the numbers, said Billy Leung, an investment strategist at Global X ETFs. He said investors were “hoping for more from policy.”
Lifting consumer spending is key to countering US policies that are upending global trade and causing a slowdown of Chinese exports, which contributed to nearly a third of the country’s economic expansion in 2024.
China’s front-loading of shipments abroad has been supporting industrial production at the start of the year, according to Jacqueline Rong, chief China economist at BNP Paribas SA. Exports reached a record $540 billion in the first two months of the year.
“Looking forward, the tariff impact on exports will become evident sooner or later, and the downside risks on exports will definitely show up,” Rong said.
What Bloomberg Economics Says...
“China’s economy performed better than expected in the first two months of the year, but stimulus remains essential to keep the recovery going.”
— Chang Shu and David Qu. For full analysis, click here
As part of an effort to boost domestic spending, policymakers earlier expanded China’s trade-in program for consumer goods and introduced measures to restore household confidence.
The latest data reflected demand for goods that were eligible for subsidies. Retail sales of products ranging from furniture to home appliances rose sharply.
The drive has also helped shore up investment, as equipment and device purchases beat BNP’s expectations and boosted overall capital spending, Rong said. At the same time, property remains a weakness, with the floor space of new home sales still falling and investment slumping 9.8%.
The acceleration of infrastructure investment growth from last year “suggests the front-loading of fiscal stimulus is another important support for economic growth so far this year,” Rong said. “The real estate sector will remain a drag on the economy this year.”
The government unveiled a special action plan aimed at reviving consumption in the country over the weekend. It marks China’s latest effort to expand domestic demand, the government’s top economic task this year as it seeks to achieve an ambitious growth target of around 5%.
Investors await further clues from top officials during a press conference set to be held at 3 p.m. Monday on steps to boost consumption.
Gains in retail sales have continued to lag behind growth in industrial production, a divergence that was evident throughout last year. China’s factory activity returned to expansion in February, according to the official manufacturing purchasing managers’ index released earlier this month.
Even so, the consumer economy is stabilizing after a slowdown, as government subsidies coax consumers to buy new smart-phones, home goods and cars. Holiday makers also splurged during the week-long Chinese New Year break through early February.
Nathan Chow, senior economist at DBS Bank, said the figures suggested that a bottoming out of the economy is forming. The data “is a plus definitely. That should give the recovery more staying power than just a rally based on policy news and hype”, he said.
--With assistance from Iris Ouyang, Rebecca Choong Wilkins and Zhu Lin.
