HONG KONG, April 18 (Reuters Breakingviews) - Shoppers are visibly out and about on Chinese streets. That’s now showing up in the data: a more than one-tenth jump in March retail sales helped the country’s economy grow 4.5% in the first quarter, beating expectations; there are signs real estate is stabilising, too. Yet demand is uneven, and flattering base effects from last year’s lockdowns will wear off.
The risk is the shopping recovery gets bifurcated between luxury purchases and basic needs, leaving out big-ticket middle-class items. Porsche (PSHG_p.DE) had a record first quarter thanks to China sales, for example. Yet Tencent (0700.HK) revealed with its first-quarter earnings that payments via its app appeared concentrated on low-ticket consumer items purchased offline. Meanwhile, Chinese savers added another 10 trillion yuan ($1.4 trillion) to their household deposits in the first quarter, reinforcing concerns that they will keep hoarding instead of splurging.
As for real estate, which drives an estimated one quarter of output, home prices are recovering mostly in wealthy cities, whereas the crisis is concentrated in the hinterlands. Property construction and investment remain down.
With inflation at 0.7%, there is room for targeted government stimulus to help broaden and entrench the recovery. Channelling it is the problem. Fiscal spending on infrastructure is Beijing’s reflex because it generates growth and jobs, but low returns from building subway lines and the like in economically distressed areas aggravate the country’s municipal debt crisis, which is investors’ second-largest concern after the U.S.-China relationship, per a Goldman Sachs survey.
Any interest-rate adjustments might flow into property speculation, which President Xi Jinping hates, and the business community is more concerned about sales than credit anyway. Bank loans hit an all-time high of 10.6 trillion yuan in the first quarter, yet that did not appear to translate into private investment in fixed assets, which is barely growing. Industrial profits fell 23% last month.
In a speech in March, Cai Fang, a member of the central bank’s monetary policy committee, suggested transferring 4 trillion yuan directly to households to compensate for weak income growth. But the first quarter’s massive upside surprise, combined with the Ministry of Finance’s concerns about fiscal stress, makes anything of the sort unlikely. That may explain why domestic equity indexes did not celebrate the GDP data. If the first quarter’s print turns out to be misleadingly rosy, China’s reopening boom could quiet down quickly.
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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
CONTEXT NEWS
China's economy grew faster than expected in the first quarter, official data showed on April 18, expanding 4.5% year-on-year and 2.2% from the prior quarter.
Exports unexpectedly surged 14.8% year-on-year in March.
Imports contracted 1.4% that month, smaller than the 10.2% contraction in January and February.
Retail sales grew 10.6% in March compared to the same period in 2022.
