China’s economy is growing surprisingly strongly

The statistics office in Beijing reported unexpectedly good economic data for the first quarter. However, experts point to high government investments and doubt whether the upswing will be sustainable.

China’s economy got off to a surprisingly strong start to the new year. According to the statistics office in Beijing, the world’s second largest economy grew by 5.3 percent in the first quarter compared to the same period last year. On average, economists had only expected gross domestic product to grow by 4.8 percent. In the statement, the statistics office spoke of a “good start” to the year.

However, other current data suggests a slowdown in growth in March. According to the statistics office, industrial production in March rose 4.5 percent year-on-year, slower than analysts expected. Retail sales were also below forecasts, with an increase of 3.1 percent.

Foreign trade clouds the picture

The foreign trade figures for March published on Friday also clouded the picture. Exports fell 7.5 percent year-on-year in dollar terms, while imports fell 1.9 percent.

Beijing is aiming for economic growth of around five percent this year. Experts consider this to be an ambitious goal given the ongoing real estate crisis and comparatively weak consumer spending.

Weak Consumer Confidence

According to Maximilian Butek, executive board member of the German Chamber of Commerce in East China, the relatively strong growth in China can also be attributed to the expansion of new industries into which a lot of money is flowing. “In China, the focus is on expanding the industry, especially for products such as chips and electric vehicles. This is now reflected in the numbers,” said Butek.

A lot is being invested, but consumer confidence remains weak. “It is questionable to what extent German companies can benefit from this type of growth.”

Before Chancellor Olaf Scholz’s current visit to China, the chamber drew attention to the problems faced by German companies in the People’s Republic. In a survey, around two thirds of the German companies operating there complained about unfair competition.

Slow recovery after the Corona break

After the massive restrictions in the wake of the corona pandemic, the economy of the People’s Republic is recovering only slowly overall. “The slowdown in economic growth in March raises doubts as to whether the economic recovery recorded at the beginning of the year can be sustained,” said Commerzbank economist Tommy Wu, commenting on the current data. “This increases pressure on the government to implement further measures to support the economy.” Beijing will probably continue to focus on incentives for investments in infrastructure and emerging industries.

The country’s real estate sector – previously a guarantee of strong growth – is deep in crisis. A weakening global economy is slowing down the Chinese economy, which is geared towards exports. Domestic demand also leaves much to be desired. There are also demographic problems: the population is aging and shrinking. Many young people also cannot find a job. Many cities and municipalities are heavily indebted.

Downgrade due to government spending?

Because of the high level of government support measures, the People’s Republic is threatened with a poorer credit rating from the rating agency Fitch. Last week it lowered its credit rating outlook from “stable” to “negative”. The reason is increasing risks for the budget due to the switch to a new growth model.

With material by Benjamin Eyssel, ARD Studio Beijing.