China’s economy grew strongly in the first three months of the year, new data shows, as China built more factories and exported huge quantities of goods to counter a severe housing crisis and sluggish 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 series of new factories that have helped boost worldwide sales of solar panels, cars electrical and other products. products.
But China’s push for exports has worried many countries and foreign companies, which fear that the increasing shipments of Chinese goods that are flooding economies elsewhere could undermine their own 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 from the previous three months. When projected for the full year, first-quarter data indicates that China’s economy was growing at an annual rate of about 6.6 percent.
China needs strong growth to reduce persistently high youth unemployment and help businesses and households cope with very high levels of debt.
For this year, China has set a growth target of around 5 percent, a goal that many economists had considered ambitious, although some recently raised their forecasts. Last year, China’s economy grew 5.2 percent.
Production was 5.3 percent higher in the first three months of this year than during the same period last year, the statistics office announced on Tuesday. This exceeded economists’ forecasts of a 4.6 to 4.8 percent increase.
Strong exports earlier this year helped boost China’s economy. The value of exports rose 7 percent in dollar terms in January and February from a year earlier, and 10 percent when measured in the Chinese currency, the renminbi. But the actual contribution of exports to the country’s economy was considerably larger, as falling prices obscured the full extent of China’s export gains.
Guo Tingting, vice minister of commerce, said at a news conference last month that the physical volume of exports had increased 20 percent in January and February from last year. However, exports faltered somewhat in March.
Retail sales have also increased this year, but at a moderate pace of 4.7 percent compared to the first three months of last year. With street festivals and other activities, the government has encouraged families to spend more, even as many in China have increased their savings to offset the recent drop in the value of their apartments.
Domestic tourism spending and box office ticket sales surged during the Lunar New Year in February, easily surpassing pre-Covid-19 pandemic levels. Smartphone sales have also increased (although not for Apple) as Chinese buyers increasingly choose local brands.
The general decline in prices, a phenomenon that can be rooted in deflation, remains a problem, particularly for exports and at the wholesale level. Chinese companies have been competing to reduce export prices and gain a greater share of global markets, even when this means incurring heavy losses.
During high-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 a visit to China, although he also warned against protectionism in Europe.
China is ramping up manufacturing and exports to offset a deep decline in home construction and apartment prices. Housing construction (and the production of steel, glass and other materials for them) was the biggest driver of growth in China for many years. But sales of new apartments have fallen fairly steadily since the beginning of 2022. Few construction projects are currently starting, as dozens of insolvent or near-insolvent developers struggle to finish the homes they had previously promised to buyers.
Chinese officials partly blame the Chinese economy’s weaknesses on high foreign interest rates designed by the Federal Reserve to combat inflation in the United States. Those rates have made it more attractive for Chinese families and businesses to move money out of China, where interest rates are low, to foreign countries where rates are higher.
“The negative impact of the high interest rate environment on the economy continues,” said Liu Haoling, president of the China Investment Corporation, which is 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 giant, backed by years of political directives and financial support from Beijing to local governments and businesses, 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 percent in March from a year earlier.
China has required companies to invest more in research and development, hoping that a wave of innovation will spur economic development.
The country is also demanding that factories pursue greater automation. “By 2025, we will have realized a new type of industrialization,” Jin Zhuanglong, minister of industry and information technology, said at the China Development Forum, noting that China already produces more than 30 percent of the world’s manufactured goods. .
China’s state-controlled banking system has been funneling more money to industrial companies, helping them pay for extensive construction of new factories. Investment in manufacturing projects increased 9.4 percent in the first two months of this year compared to the previous year.
But many households are cutting back on spending. “Chinese companies, across a wide range of sectors, now produce far more than domestic consumption can absorb,” consulting firm Rhodium Group said in a late March report.
People’s caution about spending is something Li Zhenya sees every day. He runs Izakaya Jiuben, a Japanese restaurant in Beijing’s Wangjing neighborhood, which was once home to some of China’s biggest tech companies.
A few years ago, workers would line up outside the restaurant and leave nearby offices to spend their hard-earned money on short breaks between long shifts. Today, many of the restaurant’s seats are empty at lunch and dinner times.
“People’s desire to consume is not as high now,” said Jiuben’s Mr. Li. The restaurant, he said, makes 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 on the fourth floor of Pano City Mall, where there are restaurants advertising Korean, Japanese and Chinese food next to empty storefronts. Some places look abandoned: the lights are off, but next to the checkout there are a pile of takeout boxes, the lamps still hanging or the chairs and tables intact.
Centered around three curved, pebble-shaped buildings designed by Zaha Hadid, the Wangjing neighborhood was once a hub of activity for the capital’s busiest workers. Restaurants and stores benefited from the presence of companies such as Alibaba, JD.com and Meituan.
“The lights used to be on when night fell, but now at least half of them are off,” Mr. Li said.
A government crackdown that began in 2020 pushed companies to cut jobs. Others left Wangjing. Covid-19 restrictions that froze the neighborhood for weeks made it difficult for small businesses in Wangjing to recover.
“The epidemic led to caution in consumption,” said Kou Yueyuan, owner of Smoon Bakery on Pano City Street. “Obviously, customers are quite price sensitive,” Kou said.
Ms. Kou started her business more than eight years ago, selling baked goods such as bitter melon bagels and ube mochi twists. She now puts less emphasis on developing new baked products with different flavors. Instead, she focuses on keeping costs down so the bakery can offer cheaper prices.
Li you contributed to the research.
