Analysis: China’s Economy Requires More Effort to Sustain Recovery
Official data indicate that the Chinese economy had a good start to the year. However, a sustainable recovery will require further efforts.
Based on my analysis of year-on-year growth in the Index of Services Production and value-added industrial output in the first two months, GDP likely grew 5.2% year-on-year in the period, on par with the levels seen in October and November, but down 0.5 percentage points from the whole of 2024.
Data released Monday by the National Bureau of Statistics (NBS) show that in the first two months, manufacturing investment grew rapidly, and the sales-to-production ratio of large industrial enterprises declined year-on-year. This is not conducive to the recovery of prices or capacity utilization.
Meanwhile, the strong start in fixed-asset investment was largely due to proactive efforts by the government and state-owned enterprises. Historical figures suggest the first quarter is normally the peak for fixed-asset investment growth. So subsequent growth this year will depend on policy and its effectiveness at unlocking the potential of private investment.
Notably, significant progress has been made in reducing real estate inventory. In the January-February period, the year-on-year growth rate of unsold new homes measured by floor space dropped 18 percentage points from a nine-year peak in the first five months of last year, reaching the lowest level since late 2021. In the period, the year-on-year decline in real estate development investment narrowed to 9.8% from the whole of 2024.
The first two months saw retail sales of consumer goods grow 4% year-on-year, helped by a marginal recovery in dining revenue and the Lunar New Year holiday.
However, the growth of retail sales of automobiles and home appliances, supported by trade-in policies, slowed. To offset their potentially diminishing effects, it is necessary to further strengthen and expand these policies.
Lastly, the job market was not promising. In February, the surveyed urban unemployment rate rose to 5.4%, with employment pressure particularly affecting rural migrant workers, according to NBS data.
Zhong Zhengsheng is a member of the China Chief Economist Forum.
Contact translator Qing Na (qingna@caixin.com) and editor Jonathan Breen (jonathanbreen@caixin.com)
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