China’s economy expanded far more than expected in the first quarter of 2024, data showed Tuesday, but disappointing retail and industrial figures suggested leaders face severe headwinds to hit their annual growth target.

Beijing has set a goal of around five percent for 2024, which officials have already admitted will “not be easy” and analysts have described as ambitious given the challenges the world’s second-largest economy is confronting.

For the first three months of the year, gross domestic product rose 5.3 percent, compared with 5.2 in the previous quarter, the National Bureau of Statistics said.

The figures well exceeded analysts’ expectations, with those pooled by Bloomberg forecasting 4.8 percent.

“The national economy continued the good momentum of a rebound,” the NBS said, calling it a “good start”.

The GDP data remains a key insight into the health of China’s economy, despite being eminently political.

Tuesday’s figures “beat the market expectation by a wide margin”, Dan Wang, chief economist at Hang Seng Bank China, told AFP.

“Consumption and housing investment (were) the main drag, while manufacturing and infrastructure were the main engines,” she said.

It reflects “the fundamental policy shift from a focus on (the) consumer market and service sector to… industrial growth”.

But woes in the property market remained a millstone for the economy as home prices continued to fall and top developers including Country Garden and Vanke sent out distress signals over their profits and challenges paying off debt.

Reflecting those difficulties, last month also saw a fall in property prices in China’s major cities, data showed.

And the International Monetary Fund (IMF) warned on Tuesday that the country’s “troubled” property sector posed an obstacle to recovery for the world’s second-largest economy.

“In China, without a comprehensive response to the troubled property sector, growth could falter, hurting trading partners,” the IMF said in its World Economic Outlook report.

“Domestic demand will remain lackluster for some time unless strong measures and reforms address the root cause,” the IMF wrote, saying that “credit booms and busts never resolve themselves quickly, and this one is no exception.”

Fears about a return to deflation are also looming.

Derek Scissors, a senior fellow at the American Enterprise Institute (AEI), warned that “the good news ends” with the real GDP figure, which is adjusted to take into account inflation.

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“Deflation is evident in GDP and in producer prices,” he said, adding that “benchmark indicator retail sales were slower than last year at this time.”

“There are two reads on the full set of figures: China’s surprising real GDP growth is unsustainable or China’s surprising real GDP growth is fake.”

– Growth still sluggish –

Some sectors are doing well, notably services, as customers return to restaurants, travel internally and visit tourist spots.

However, both retail sales — the main indicator of household spending — and industrial output slumped last month, officials said.

Retail sales grew just 3.1 percent on-year, down from 5.5 percent in the first two months of 2024, while industrial production rose 4.5 percent, compared with seven percent in January-February.

The unemployment rate fell in March to 5.2 percent, from 5.3 in February.

That figure, however, paints an incomplete picture as it only includes workers in cities, effectively excluding millions of migrant labourers from rural areas who are particularly vulnerable to the downturn and whose situation has been exacerbated by the housing crisis.

The latest figures follow last week’s report showing exports and imports sinking.

Ratings agency Fitch last week downgraded the country’s sovereign credit outlook to negative, warning of “increasing risks to China’s public finance outlook” as it contends with more “uncertain economic prospects”.

Policymakers have announced a series of targeted measures as well as the issuance of billions of dollars in sovereign bonds to boost infrastructure spending and spur consumption.

But analysts say much more needs to be done in the form of a “bazooka” stimulus.

Beijing insisted on Tuesday that state efforts to boost growth were “producing effects”.

And Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, said in a note that “strong first-quarter growth will make the government comfortable with the current policy stance”.

Growth is particularly hampered by sluggish confidence among households and businesses in the context of this economic uncertainty, which is hammering consumption.

“Weakness in consumer confidence and (the) real-estate sector remained a challenge,” Chaoping Zhu, a Global Market Strategist at JP Morgan Asset Management, said.

“More proactive policy support is necessary to boost consumer expectation and demand,” he added.

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