China managed to beat expectations to grow by 4.5% year on year in the first quarter of 2023 as per the data released by the National Bureau of Statistics (NBS). This growth is largely attributed to a strong rebound in domestic consumption and consumer confidence. Kavan Choksi points out that the end of the Covid-19 related restrictions played a major role in driving an economic recovery in the Chinese Mainland as life got back to normal for consumers and businesses alike.
Kavan Choksi briefly discusses the state of China’s economy
Subsequent to the relaxation of its zero-Covid policy, consumption saw the strongest recovery in China and contributed 66.6% to the real GDP growth recorded over the first quarter in 2023. Retail sales recorded 10.6% year-on-year growth in March 2023 was the fastest rate since July 2021. This recovery was led by the services industry. Catering sales in the country surged by 13.9% in January ‑March amid “revenge spends” subsequent to the withdrawal of covid‑19 restrictions. The sales recovery in non‑durable and semi‑ durable goods outpaced spending in durable goods, especially in segments linked to discerning offline social activities, which may include textiles and sports goods. Sales of jewellery, silver and gold bucked the expectations of a more-muted recovery in segments of the luxury market. However, this may even reflect recent anxieties associated with global financial disruptions.
Consumption trends generally underline an imbalanced recovery among varying income groups. Real GDP growth outpaces average real household income growth in the first quarter. This suggests that the strong economic performance has not been translated yet into an improvement in household incomes in lower income groups.
Even though the overall unemployment rate has decreased marginally, a recent survey carried out by the People’s Bank of China did illustrate considerable weakness in household confidence for future income, thereby hinting at caution for future spending patterns.
No matter the data trends, the strong headline growth number of China did not manage to translate into wider regional (or global) economic momentum. Average growth in goods imports fell by 7.1% year on year in January ‑March (in US dollar terms). This affirmed the earlier warnings that the reopening of China may offer shallower support to the global economy in 2023 in comparison to the previous years. Companies operating within China hence look better placed to benefit from the post Covid-19 consumption rebound, especially as supply chains have developed onshore and demand has got tilted towards domestic brands. However, several overseas exporters might continue to struggle with the tepid import demand in China in the near future. Even though some of these pressures are receding as per recent import trends, the outlook for China’s commodities imports for 2023 remains bleak in general.
On the whole, Kavan Choksi points out that better than expected GDP growth in China in the first quarter of 2023 was primarily spearheaded by a sharp rebound in consumer spending, particularly in services, non‑durable goods and semi‑ durable goods. But this rebound is majorly self contained.
