China’s Economic Growth in Q1 2023

(Reuters) – China’s economy grew 5.4% year-on-year in the first quarter, surpassing estimates, but a trade war with the United States has cast a shadow over the outlook and raised pressure on Beijing to roll out further stimulus.

Analysts polled by Reuters had expected first-quarter gross domestic product (GDP) to expand 5.1% from a year earlier, slowing from 5.4% in the previous three months.

U.S. President Donald Trump has ratcheted up tariffs on Chinese goods, prompting Beijing to slap retaliatory duties on U.S. imports in an intensifying trade war between the world’s two biggest economies that markets fear will lead to a global recession.

KEY POINTS

• Q1 GDP +5.4% y/y (forecast +5.1%, Q4 +5.4%)
• Q1 GDP +1.2% q/q (forecast +1.4%)
• March industrial output +7.7% y/y (forecast 5.8%)
• March retail sales +5.9% y/y (forecast +4.2%)
• March fixed asset investment +4.2% y/y (forecast +4.1%)
• January-March property investment -9.9% y/y

MARKET REACTION

Both the blue-chip CSI300 Index and the Shanghai Composite Index were down nearly 1% by midday after the data release.

COMMENTARY

ZHIWEI ZHANG, Chief Economist at Pinpoint Asset Management, Hong Kong
“China’s economy grew faster than expected in the first quarter. March activity data also accelerated across the board, which is consistent with the strong export data released earlier. The damage from the trade war will show up in the macro data next month. High-frequency indicators suggest exports slowed sharply in the region. Supply chains are disrupted, and the ripple effect will likely show up in many countries.”

CHARU CHANANA, Chief Investment Strategist, Saxo, Singapore
“The upbeat print masks underlying fragilities. Much of the strength likely reflects frontloading of exports ahead of the U.S. tariff hikes that kicked in this month. With levies now raised to as much as 145% on Chinese goods, the risk is that export momentum fades quickly, dragging down industrial activity.”

ZICHUN HUANG, China Economist, Capital Economics
“China’s economy regained some momentum in March due to fiscal support, which helped the first-quarter GDP figures beat expectations. But this wasn’t enough to deliver faster growth over the quarter as a whole. And with exports set to weaken, growth is still on course to slow this year.”

RYOTA ABE, Economist, SMBC, Singapore
“The slower quarter-to-quarter growth may suggest that the recovery of domestic demand was not strong. In case the U.S. tariffs imposed on the Chinese goods remain, the momentum will likely be weaker than the first quarter.”

MATT SIMPSON, Senior Market Analyst, City Index, Brisbane
“While China’s growth figures would usually be bullish for sentiment, they have been overshadowed by Trump’s trade war – as the impact is yet to show up in the data.”

XING ZHAOPENG, Senior China Strategist, ANZ, Shanghai
“The data looks encouraging, as growth may help close the output gap. Both external and domestic demand were good in the first quarter.”

WOEI CHEN HO, Economist, UOB, Singapore
“The data is very strong for March … and it was mainly because of manufacturers trying to get the orders out before the tariff.”

BACKGROUND

• China has struggled to mount a strong and sustainable post-COVID economic rebound, impacted by a protracted property downturn and weak private-sector spending.
• The world’s second-largest economy is facing challenges to its financial stability as U.S. President Donald Trump intensifies tariffs on its goods.
• Analysts believe much more policy stimulus is needed to keep the economy on an even keel in the face of Trump’s tariff shock.
• China has set an ambitious 2025 growth target of “around 5%”. However, the trade war has prompted many analysts to downgrade their GDP forecasts for this year.
• Policymakers have stated that the country has ample room and tools to bolster the economy, with Premier Li Qiang pledging to roll out more support measures.