China’s economy expands by a surprisingly strong pace in the first quarter of 2024

By Laura He, CNN

Hong Kong (CNN) — China’s economy grew stronger than expected at the start of this year, mainly thanks to robust growth in high-tech manufacturing.

Gross domestic product (GDP) grew by 5.3% in the first quarter from a year ago, according to the National Bureau of Statistics on Tuesday. That beat the estimate of 4.6% growth from a Reuters poll of economists. It also marked an acceleration from the 5.2% growth in the previous three months.

“The Chinese economy got off to a good start in the first quarter … laying a good foundation for achieving the goals for the whole year,” said Sheng Laiyun, a spokesperson for the NBS, at a press conference in Beijing accompanying the data release.

But he acknowledged that “the foundation for economic stability and improvement is not yet solid.”

Industrial production jumped 6.1% in the first quarter from a year ago, boosted by strong growth in high-tech manufacturing.

In particular, the production of 3D printing equipment, charging stations for electric vehicles (EVs) and electronic components all surged about 40% compared to a year earlier.

Last month, an official survey showed China’s manufacturing purchasing managers’ index (PMI) expanded for the first time in six months. The Caixin/S&P manufacturing PMI, a privately run survey, also hit its strongest reading in more than a year, as overseas demand picked up.

China has set an annual growth target of around 5% for 2024, which many analysts considered ambitious, as consumer and business confidence remains weak and the real estate sector is mired in a prolonged downturn.

The authorities have cut interest rates this year to boost bank lending and speed up central government spending to support infrastructure investment.

“The economy appears within reach to meet the official target of ‘around 5%’ GDP growth in 2024,” Frederic Neumann, chief Asia economist for HSBC, told CNN.

Tuesday’s data showed that retail sales grew 4.7% in the January-to-March period, boosted by spending in sports and entertainment activities, cigarettes and alcohol, as well as catering services.

Investment in fixed assets — such as factories, roads and power grids — increased 4.5% during the same period.

Mismatch in the economy

But there are plenty of concerns still.

“There’s a growing mismatch in China’s economy; manufacturers are doing the heavy lifting, while households sit on the sidelines,” said Harry Murphy Cruise, an economist at Moody’s Analytics.

Much of the good news in manufacturing comes from China’s “new three” industries: EVs, solar panels and batteries.

“Officials have spent big to support these strategic industries, and are reaping the rewards as production takes off and exports — particularly for EVs — surge amid a broader pullback in global demand,” Cruise said.

But the strategy isn’t without risks.

There is growing angst in the United States and European Union that China’s overcapacity in these areas is flooding global markets and hindering their domestic industries.

Comments by US Treasury Secretary Janet Yellen on her visit to China last week highlight America’s willingness to intervene with tariffs, if it deems them necessary.

“Were that to occur, China’s manufacturing bright spot would be dampened,” Cruise said.

Property and consumption woes

The property market is also a major drag.

Property investment slumped 9.5% in the first quarter from a year ago, according to NBS data. New property sales slid 27.6% during the same period.

Separately, new home prices in 70 cities fell 2% in March from a year earlier, which was faster than February’s 1.3% drop, according to Goldman Sachs’ calculation based on the NBS’ latest data release.

“The property market’s woes are continuing,” Cruise said.

The embattled property market is weighing on consumer spending, as 70% of Chinese household wealth is tied to real estate.

Weak job prospects and economic uncertainty are also holding back household spending.

In March, retail sales growth slowed to 3.1% from 5.5% in February.

According to the NBS data, household confidence for employment and income is near “the historical bottom,” which dragged down retail sales in March because demand had been released during the Lunar New Year holidays that took place weeks earlier, said Chaoping Zhu, Shanghai-based global market strategist at JP Morgan Asset Management.

Foreign investors losing confidence

Confidence in the world’s second largest economy among foreign investors, who had helped power growth during China’s boom days, also remains weak.

The growth in first-quarter investment came mainly from state-owned enterprises, which spent 7.8% more than a year ago. Investment by the private sector increased by just 0.5%.

As for foreign companies, their investment in the country plunged by 10.4% in the first three months.

Beijing has made reviving economic growth its top priority for this year and has renewed its efforts to woo foreign investors.

On Tuesday, Chinese leader Xi Jinping met visiting German Chancellor Olaf Scholz in Beijing and called on the two countries to boost trade and “deepen cooperation” on machine manufacturing, autos and artificial intelligence as complaints from the EU grow about the proliferation of Chinese products.

A day before, Scholz said Germany welcomed imports of Chinese cars but warned against dumping, overproduction and intellectual property infringements, according to Reuters.

Last month, Xi met with more than a dozen US CEOs and academics in Beijing and invited them to “continue to invest in China.” He expressed confidence that the country will maintain a healthy and sustainable growth in the coming months.

China’s economy grew 5.2% in 2023. While this expansion marked a significant pick-up compared to 2022, when it grew by just 3% amid intense coronavirus lockdowns and disruption, it was still one of the country’s economic worst performances in over three decades.

Foreign direct investment in China has slumped in recent months as a combination of slower growth, regulatory crackdowns, onerous national security legislation and questions about the country’s long-term prospects have shaken confidence in the world’s second biggest economy.

“The strong first-quarter growth figure goes a long way in achieving China’s ‘around 5%’ target for the year. But medium-term growth prospects hinge on broadening the economy’s growth drivers,” Cruise said.

“If the officials can’t convince households to loosen the purse strings, the economy risks having too many eggs in one basket.”

This story has been updated with additional information.

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CNN’s Marc Stewart, Kristie Lu Stout, and Wayne Chang contributed to reporting.