China’s “good start” to 2024 is already showing signs that it may be running out of energy. While Beijing reported better-than-expected GDP growth on Tuesday, statisticians also reported disappointing data for March, showing the world’s second-largest economy is still grappling with a housing crisis and plummeting consumer confidence.
According to data from the National Bureau of Statistics, China’s economy grew by 5.3% year-on-year in the first quarter of the year. This figure exceeded economists’ expectations of between 4.2% and 4.8%. The economy “is off to a good start,” NBS said in a statement.
However, other statistics released on Tuesday were less than encouraging, implying that China’s economy still faces serious difficulties. “The foundations for economic stabilization are not yet solid,” warns the NBS.
Real estate collapse
China’s years-long real estate slump shows no signs of abating, as quarterly sales of new homes plunged 30.7% year-on-year. In the same period, real estate investments also decreased by 9.5%.
The country’s real estate sector is still grappling with the after-effects of years of excessive debt. Regulations passed in 2020, intended to curb debt, have instead triggered a liquidity crisis for Chinese developers. The liquidity crisis has pushed several developers to default on their foreign debts and suspend construction of pre-sold properties.
Officials have tried to boost home sales through measures such as reducing down payments and interest rates, but home prices are still falling. A Hong Kong court has ordered the liquidation of real estate giant Evergrande, whose default at the end of 2021 helped trigger the crisis. Other Chinese developers are facing their own liquidation filings in Hong Kong. On Tuesday, HSBC-owned Hang Seng Bank filed such a petition against developer Times China.
“Real estate is critical,” Vice Premier He Lifeng told officials and bankers in the Chinese city of Zhengzhou, urging more funding for developers who meet the requirements of “timely completion and delivery,” according to the report. South China Morning Post.
The Chinese government may have to spend $2.1 trillion to fix problems in the real estate market, Goldman Sachs analysts estimated in a report released Sunday.
Retail trade and exports
The prolonged housing crisis is contributing to China’s ongoing struggle with consumer confidence. According to the NBS, retail sales rose 3.1% in March, lower than the consensus estimate of 4.6% compiled by Reuters.
Data on Tuesday suggested China’s growth in the first quarter was driven by the manufacturing sector. Industrial production increased 6.1% year-on-year in the quarter. According to data released before the weekend, exports were 4.9% higher in the first quarter than in the same period last year. However, isolated export data for March showed a steeper-than-expected year-on-year decline.
Industrial production may already be weakening, too. Specifically, March data showed an increase of 4.5%, lower than the 6% expected by economists.
China is currently trying to shift the economy towards higher-value sectors such as new energy vehicles, green energy and semiconductors. Yet the country’s strength in these areas is raising headaches for Western governments, with some officials, such as US Treasury Secretary Janet Yellen, warning of “overcapacity” in conversations with Beijing.