Chinese economy: good first quarter

With 5.3% growth in the first quarter, the Chinese economy expanded much more rapidly than most analysts had expected. This surpassed the growth posted in the fourth quarter of 2023 (5.2%), and the 5% target for the year as a whole now seems to be well feasible. Some observers noted that the economic data for March were already somewhat weaker and fell short of the expectations, however, especially for retail sales and industrial production. It must also be noted here that March 2023 as a reference month significantly distorts the data, given that this was the first full month of “reopening” of the economy after the pandemic-related restrictions. Thus, growth in March 2023 was unusually high and is not an entirely valid basis for comparison.

Real estate market still down

Regardless of this, China’s underlying problems have not yet been solved. The real estate market is still in a very difficult situation. Home sales declined by more than 30% in the first quarter, in volume terms however, and not in terms of the selling prices. But the latter also retreated by an average of around 2.7% for new (and not government-subsidised) homes. There is significant excess capacity in some manufacturing segments that can only be offset through exports in the short term. And that is also a source of worry for the IMF, which sees potential here for new global trade conflicts. A massive Chinese export offensive can in fact be seen with automobiles, especially electric cars.

Only limited room for fiscal stimulus

The credit growth trend is still pointing down, which is not indicative of a substantial growth surge in the coming quarters. However, it has been a declared goal for Beijing for many years to curb lending in light of the high aggregate debt (government, corporate), which hit a new record last year at just under 290%. All in all, fiscal stimulus will likely remain too low for the time being to facilitate a more substantial economic upswing. At the same time, leeway for additional government debt is significantly lower than 10 or 20 years ago. Thus, any impetus will be selective, and monetary policy stimulus will also play a role (for example through further reductions in the minimum reserves for banks). The strength of the US dollar is also an impediment to interest rate cuts.

Equity markets continue to recover

China’s stock exchanges continued to climb in March, in line with the positive global trend. The A-shares in Shanghai rose by around 0.9% on average, and the H-shares in Hong Kong by 2.3%. The valuations in many market sectors are currently very low, both in comparison to their own long-term performance (at de facto record lows), and in international comparison. As an example, the “magic seven” of the US equity market (Apple, Nvidia, Microsoft, Meta, Google, Amazon, and Tesla) are currently worth roughly the same on the exchange as all of the shares of Chinese companies in Hong Kong and on the mainland together.