China’s economy grew more than expected in the first three months of the year, new data showed, as China built more factories and exported huge amounts of goods to counter a severe property crisis and subdued spending at home.
To spur growth, China, the world’s second-largest economy, has turned to a familiar tactic: investing heavily in its manufacturing sector, including a slew of new factories that have helped boost worldwide sales of solar panels, electric cars and other products.
But China’s bet on exports has worried many foreign countries and companies. They fear a flood of Chinese shipments to distant markets could undermine their manufacturing industries and lead to layoffs.
On Tuesday, China’s National Bureau of Statistics said the economy grew 1.6 percent in the first quarter over the previous three months. When projected for the full year, the first-quarter figures show that China’s economy grew at an annual rate of about 6.6 percent.
“The national economy has made a good start,” said Sheng Laiyun, deputy director of the statistics bureau, while warning that “the foundation for stable and healthy economic growth is not yet solid.”
Retail sales rose a modest 4.7% compared with the first three months of last year and were particularly weak in March.
China needs strong consumer spending to reduce persistently high youth unemployment and help companies and households deal with very high levels of debt.
Economists at the Federal Reserve Bank of New York warned last month that China was experiencing a “sugar high” in factory construction fueled by heavy bank lending.
For the year, China has set a growth target of about 5 percent, a goal that many economists considered ambitious, although some have recently upgraded their forecasts. Last year, China’s economy grew 5.2%.
Output was 5.3% higher in the first three months of this year than in the same period last year, the statistics office said on Tuesday, beating economists’ forecasts.
The breakneck pace of factory investment, up 9.9 percent from last year, has been central to China’s growth. Strong exports at the start of the year also helped.
The value of exports rose 7 percent in dollar terms in January and February compared with a year earlier and 10 percent when measured in the Chinese currency, the renminbi. But the real contribution of exports to the country’s economy was significantly larger, as falling prices obscured the full extent of China’s export gains.
Guo Tingting, vice minister of commerce, told a press conference last month that the physical volume of exports had increased by 20 percent in January and February compared with last year. However, exports eased somewhat in March.
With street festivals and other activities, the government has encouraged families to spend more, as many in China have increased their savings to offset the recent drop in apartment values.
Domestic tourism spending and box office ticket sales surged during the Lunar New Year in February, easily surpassing pre-Covid-19 levels. Smartphone sales have also picked up – though not for Apple – as Chinese buyers increasingly opt for local brands.
The general decline in prices, a phenomenon that can be consolidated into deflation, continues to be a problem, especially for exports and at the wholesale level. Chinese companies are racing to drive down export prices and gain a bigger share of world markets, even if it means incurring big losses.
During top-level meetings earlier this month with Chinese officials, Treasury Secretary Janet L. Yellen warned that flooding markets with exports would disrupt supply chains and threaten industries and jobs. Chancellor Olaf Scholz of Germany expressed similar concerns during his visit to China, although he also warned against protectionism in Europe.
China, meanwhile, is experiencing a deep recession in home construction and apartment prices. Housing construction – and the production of steel, glass and other materials for it – has been the biggest driver of growth in China for many years.
But new apartment sales have fallen fairly steadily since early 2022. Few construction projects are starting now as dozens of insolvent or near-insolvent developers struggle to complete the homes they have promised buyers. Investment in real estate projects fell 9.5% in the first quarter compared to a year earlier.
Chinese officials blame the weaknesses of the Chinese economy in part on high foreign interest rates designed by the Federal Reserve to fight inflation in the United States. These interest rates have made it more attractive for Chinese families and companies to move money from China, where interest rates are low, to foreign countries where interest rates are higher.
“The negative impact of the high interest rate environment on the economy continues,” said Liu Haoling, chairman of China Investment Corporation, China’s sovereign wealth fund. He spoke in late March at the China Development Forum, a gathering in Beijing of policymakers and executives.
China’s manufacturing prowess, backed by years of political guidance and financial support from Beijing to local governments and companies, has made the country’s products among the cheapest in the world. The US government revealed last week that average prices for imports from China fell 2.6% in March compared to a year earlier.
China has asked companies to invest more in research and development in the hope that a wave of innovation will boost economic growth.
The country is also requiring factories to pursue greater automation. “By 2025, we will have realized a new type of industrialization,” Jin Zhuanglong, minister of industry and information technology, told the China Development Forum.
Many Chinese households have borrowed heavily to invest in apartments and are responding to falling house prices by cutting spending. This makes China more dependent on exports to sell its rapidly growing industrial output.
“Chinese companies, across a wide range of sectors, are now producing far more than domestic consumption can absorb,” consultancy Rhodium Group said in a report in late March.
People’s wariness about spending is something Li Zhenya sees every day. He runs Izakaya Jiuben, a Japanese restaurant in Beijing’s Wangjing neighborhood, once home to some of China’s biggest tech companies.
A few years ago, workers lined up outside the restaurant, spilling out from nearby offices to spend their hard-earned money on short breaks between long shifts. These days, many of the restaurant’s seats are empty for lunch and dinner.
“People’s desire to consume is not so high now,” Mr. Li told Jiuben. The restaurant, he said, brings in about $2,156 a day in revenue, about half of its sales just a few years ago.
“I’m losing money running the restaurant,” he said.
Jiuben is located on the fourth floor of Pano City Mall, where restaurants touting Korean, Japanese and Chinese food operate next to empty storefronts. Some places look abandoned: The lights are out, but a pile of takeout boxes sits next to the cash register, lamps still hanging, or chairs and tables intact.
Centered around three curved shingle-like buildings designed by Zaha Hadid, the Wangjing neighborhood was once a hub of activity for the capital’s busiest workers. Restaurants and shops have benefited from the presence of companies such as Alibaba, JD.com and Meituan.
“The lights were on when night fell, but now at least half the lights are off,” Mr Lee said.
A government crackdown that began in 2020 prompted companies to cut jobs. Others left Wanjing. Covid-19 restrictions that froze the neighborhood for weeks at a time made it difficult for small businesses in Wangjing to recover.
“The epidemic has led to caution in consumption,” said Kou Yueyuan, the owner of Smoon Bakery, below Pano City. “Customers are obviously quite price sensitive,” Ms Kou said.
Ms. Koo started her business more than eight years ago, selling pastries such as bitter melon buns and ube mochi twists. Now he puts less emphasis on developing new pastries with different flavors. Instead, he focuses on keeping costs down so the bakery can offer cheaper prices.
Li You contributed to the research.
