China’s Q1 GDP grows faster than expected on policy support

China’s economic growth beat expectations in the first quarter, as factory output led the expansion bolstering expectations the government can hit its ambitious annual target.
Gross domestic product increased 5.3% in the January-to-March period from a year earlier, data released by the National Bureau of Statistics showed Tuesday. That’s higher than the median estimate of 4.8% in a Bloomberg survey of economists and just above a growth rate of 5.2% in the final quarter of 2023.
Other key figures from the data:

China’s economic recovery has been unbalanced.Manufacturing is holding up, thanks to resilient overseas demand and Beijing’s efforts to cushion the blow from US trade restrictions by developing advanced technologies at home. But Chinese consumers have been slow to recover their appetite for spending, amid a prolonged real estate downturn that’s weighing on household and business confidence. Factory prices have been in deflation for more than a year, reflecting anemic domestic demand as well as excess capacity in some industries.
China’s growth target for this year is around 5%. Many economists say the government will have to take more action to stabilize the property market, and encourage consumers to spend, in order to hit the goal.
Investors are closely watching one major government effort to boost domestic demand this year: a trade-in program that will encourage businesses to upgrade their machinery and households to buy new cars, refrigerators or washing machines. Shares of Chinese home-appliance makers jumped last week after officials vowed “strong” fiscal support for the plan.
The real estate slump that’s dragging on consumers shows no sign of bottoming. Housing sales and investment continued to decline, despite increased funding for developers and efforts in a growing number of cities to encourage home purchases via cheaper loans or looser restrictions on owning multiple properties. Even some of the country’s biggest builders have plunged into a credit crisis.
The People’s Bank of China may provide more support for cheap loans to housing funds in the coming months via its Pledged Supplemental Lending program, some analysts say.
The central bank on Monday kept the rate of its one-year medium-term lending facility unchanged, and drained cash on net from the banking system via the tool for a second straight month. The PBOC cut its reserve requirement ratio for banks by 50 basis points in February — a move that allows extra lending — and said there’s room for more cuts. But China has reasons to be cautious in any monetary easing, since widening the yield gap with the US risks adding to downward pressure on the yuan.
Beijing is also using fiscal policy to bolster growth, especially by directing more public cash toward infrastructure. Government bond financing slowed in the first quarter, but analysts say that’s mainly because funds raised last year are still being used, and they predict an acceleration in bond sales this quarter to sustain investment.
Strong sales abroad helped balance China’s domestic woes early in the year. But exports declined in March — and with more countries threatening to erect barriers against Chinese goods, there are risks in relying on foreign trade to meet growth targets.
The degree of government support for households and businesses to spend at home will likely depend on how Chinese firms fare on international markets, Goldman Sachs economists led by Hui Shan wrote in a note last week. The Goldman team raised their growth forecast, predicting the 5% target will be met, and said the government doesn’t seem keen to significantly exceed it.
“If external demand is strong, then less domestic stimulus is needed,” they wrote. “If the property market continues to deteriorate, then more easing measures will be introduced.”