China’s Gross Domestic Product increased more than expected but doesn’t solve the country’s many economic challenges.
China reported better-than-expected GDP growth for the first quarter of 2024, setting new expectations for the economic performance of the world’s second-largest economy. The Chinese economy expanded 5.3% in the January-March period, beating expectations of Reuters-polled analysts who saw it at 4.6%.
Tuesday’s data puts China’s economic growth in line with its 5% annual goal. The objective was set at the “Two Sessions” conference last month.
Many experts deem such a goal unrealistic, though raised overall expectations for the year. ANZ raised its forecast to 4.9% from 4.2%, while BBVA kept its 4.8% projection.
On a quarter-to-quarter basis, China’s economy expanded by 1.6%, more than the 1.4% expected. In the last quarter of 2023, annual growth amounted to 5.2%, less than Q1 2024.
Despite the result, many economists say GDP data should be taken with a pinch of salt, especially as it will be revised in the months to come for more accuracy.
“Industrial production also supported through the quarter, but weak March data is cause for some concern,” Moody’s Analytics analyst Harry Murphy Cruise said. “Similarly concerning, China’s households continue to keep their wallets closed,” he added.
Moody’s is not the only rating agency concerned about China’s economic performance. Last week, Fitch downgraded the outlook of China’s sovereign credit to “negative”.
Short-term concerns
Although China could reach 5% growth if it sustains this level of industrial activity, several short-term challenges could hamper its economic security.
China’s real estate sector is in deep trouble and keeps worsening by the month. In March, property giant Shimao was sued by a China-based bank for liquidation, a very rare occurrence in the country.
Shimao is just the last of a series of property developers failing to meet their debt obligations. It all started in 2021 when Evergrande, China’s largest real estate developer, defaulted on its offshore debt.
Other than its hailing real estate sector, China reported much lower-than-expected trade exports in March. The country is the world’s largest exporter and a crucial link in the global production chain.
Exports declined due to a combination of weak global demand and geopolitical tensions. Western economies are worried about China’s overproduction and are trying to relocate their production chains to more favorable countries.
Imports also fell in March, showing an overall weakness in China’s domestic market. China is also the world’s largest importer of oil, whose prices are likely to increase in the near future because of Israel-Iran tensions.
