Chinese economy grows by a record 18.3% in the first quarter

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China’s economy expanded 18.3 per cent in the first three months of 2021, its fastest year-on-year rate for any quarter on record, highlighting the strength of its recovery from the coronavirus pandemic.

The sharp rise in gross domestic product was unusually high because, during the same period a year ago, the economy suffered a contraction for the first time in decades.

The data underscored the rapid pace of recovery in China, where a frenzy of industrial activity and low Covid-19 infection rates combined to push growth above pre-pandemic levels by the end of last year, and far beyond the performance of other big economies.

The figures, which nonetheless came in marginally below analysts’ expectations, were released as Xi Jinping’s administration prepares to mark the centennial of the founding of the Chinese Communist party in July. In the run-up to the celebrations, the party has repeatedly pointed to its successful containment of Covid-19 and the country’s robust economic recovery in comparison with the struggles of its western rivals, especially the US.

“We are confident that the current recovery trend will continue throughout the year,” Liu Aihua, a spokesperson for the National Bureau of Statistics, said at a briefing.

But the NBS also sounded a note of caution: “We must be aware that the Covid-19 epidemic is still spreading globally and the international landscape is complicated with high uncertainties and instabilities.”

The sharp jump in the first quarter, which was far higher than in any period since quarterly reporting began in the early 1990s, was again supported by industrial production. The metric added 24.5 per cent in the first quarter and alongside booming exports has helped prop up growth over the past year, though it missed expectations in March and only rose 14.1 per cent year-on-year.

The expansion was also supported by household consumption, which had previously lagged behind the wider recovery but is expected to play a greater role in driving growth this year. Retail sales beat expectations to add 34.2 per cent in March, rebounding from a period of lockdowns a year earlier.

Eswar Prasad, a China finance expert at Cornell University, said that even after taking into account the “phantom effect” of the low-base comparison from last year, the first-quarter figure was “clear confirmation of the resilience and momentum of the Chinese economy”.

Focus in China has shifted to monetary policy, with signs of overheating across parts of the economy despite persistently low consumer price inflation. The government is trying to curb leverage across its property sector, as well as rein in record rates of steel production following a construction boom.

Yue Su at the Economist Intelligence Unit said such concerns would cause the government to curb investment stimulus measures.

“Authorities are unlikely to hasten approval of infrastructure investment in the second quarter even if economic activity slows,” she said.

Prasad added: “The recovery will give the government more room to wind down stimulative macroeconomic policies and intensify [its] focus on financial risks.”

Several high-ranking officials have warned about the threat of high asset prices in recent months. Guo Shuqing, China’s top banking regulator, said in March that the country was exposed to “bubbles” in international markets and in its own real estate sector. 

The Chinese stock market hit an all-time high in February, but has since lost 15 per cent. Following the release of the data on Friday morning, the country’s CSI 300 index of Shanghai- and Shenzhen-listed stocks was flat.

Column chart of Per cent showing China’s industrial production growth year on year

The Chinese recovery from the pandemic has also helped it dominate global trade, with exports rising every month since June last year. In March, exports added 30.6 per cent in dollar terms compared with the same month a year earlier.

Despite the eye-watering year-on-year figures, officials and economists sounded a note of caution over aspects of the recovery, as well as its pace compared with the previous quarter, against which it grew 0.6 per cent.

Liu, the NBS spokesperson, noted that manufacturing investment has not returned to its pre-pandemic level. “Factories are facing many difficulties in their operation,” Liu said.

Louis Kuijs, head of Asia economics at Oxford Economics, said: “The headline year-on-year data really doesn’t tell us the story of how the economy has performed in the first quarter . . . in fact that performance was a bit disappointing. The silver lining is that March was better than the first two months.”

Fixed asset investment rose 25.6 per cent in the first quarter. The urban unemployment rate was 5.3 per cent.

Additional reporting by Xinning Liu in Beijing and Tom Mitchell in Singapore

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