China is reporting mixed economic news following last week\u2019s political gathering that saw President Xi Jinping strengthen his grip on nearly all facets of the economy and society.<\/p>\n
Consumer activity, the leading economic issue discussed at the annual meeting of the country\u2019s legislature<\/a>, is humming along so far this year, according to new government data.<\/p>\n But factory output, long the driver of China\u2019s rapid economic growth, is merely inching along \u2014 spraying cold water on increasingly bullish forecasts for the world\u2019s second-largest economy<\/a>.<\/p>\n The latest numbers for other areas, such as real estate and unemployment, paint an equally muddy picture.<\/p>\n \n \u201c<\/span> \u2018The numbers aren\u2019t great, but I don\u2019t think anyone expected them to be great given how China was afflicted by the spread of COVID in the first two months. They are definitely moving in the right direction.\u2019\u201d<\/span>\n <\/p>\n China\u2019s retail sales \u2014 a proxy for consumption \u2014 grew 3.5% in January and February as compared with the same period last year, according to data released Wednesday by the National Bureau of Statistics.<\/p>\n While only matching forecasts, that was nevertheless a sharp improvement from the big declines seen in the final months of 2022.<\/p>\n Driving the domestic activity were sales of medicine, which grew 19.3%, and the food-service and catering sector, which expanded 9.2%.<\/p>\n Consumption remains an area of particular importance for China\u2019s economy. The last 30 years of rapid economic growth have relied mainly on the industrial sector and exports, rather than domestic sales, creating an imbalanced economy that policy makers have struggled to remedy.<\/p>\n The rebound in retail sales are \u201ca welcome respite from declines at the end of last year, although we are all hoping (and expecting) to see much faster increases in the next few months,\u201d said economist Michael Pettis.<\/p>\n So are businesspeople. \u201cOur local crowd has been back for some time now,\u201d said Liu Jianlin, owner of a hot-pot restaurant in the western city of Chengdu. \u201cBut now we\u2019re seeing bigger gatherings, more group dinners, and traffic from other cities and provinces.\u201d<\/p>\n Yet the heart of the economy, industrial output, underwhelmed. Though the 2.4% growth so far this year is above the 1.3% at the close of last year, it fell short of economists\u2019 expectations.<\/p>\n Upstream sectors outperformed, such as the production of crude oil and steel, which both rose more than 3%. But more consumer-facing industries struggled, with automobile output falling a staggering 14% and sales of passenger vehicles tumbling 20%<\/a>.<\/p>\n \n \u201c<\/span> \u2018All these data suggest that the economy is healing better than expected.\u2019 \u201d<\/span>\n <\/p>\n \u201cThe numbers aren\u2019t great, but I don\u2019t think anyone expected them to be great given how China was afflicted by the spread of COVID in the first two months,\u201d Pettis told MarketWatch. \u201cThey are definitely moving in the right direction.\u201d<\/p>\n Hong Hao, chief economist of Grow Investment Group, concurred, saying, \u201cAll these data suggest that the economy is healing better than expected.\u201d<\/p>\n The data come just days after China concluded its most important political summit of the year, which saw Xi begin his controversial third term in office by moving loyalists into key positions<\/a>.<\/p>\n Top among them is his new No. 2, incoming premier Li Qiang, who told reporters on Monday that his focus was on \u201chigh-quality development\u201d and improving citizens\u2019 quality of life by lowering prices and stabilizing employment.<\/p>\n See: <\/strong>China President Xi to visit Moscow in apparent show of support for Putin<\/a><\/p>\n Also see:<\/strong> White House calls for China\u2019s Xi to talk with Ukraine\u2019s Zelensky<\/a><\/p>\n Yet the job market, along with the property sector, showed ongoing weakness in Wednesday\u2019s data.<\/p>\n The jobless rate nudged up to 5.6% from 5.5% \u2014 worse than expected and slightly higher than the government\u2019s upper-range target.<\/p>\n Doldrums in the real-estate market also persisted, with property investment falling 5.7% so far this year, according to Wednesday\u2019s numbers.<\/p>\n The weakness in employment and property may bode poorly for a sustained rebound in consumer activity, analysts said, as they are key suspects behind why household wealth declined for the first time in at least two decades last year.<\/p>\n \u201cThis suggests that once the initial reopening rebound has happened, we shouldn\u2019t expect a further surge in consumer spending,\u201d Julian Evans-Pritchard, an analyst at Capital Economics, wrote in a recent note to investors.<\/p>\n Meanwhile, Chinese stocks may have come to the end of their five-month bull run.<\/p>\n The benchmark Shanghai Composite Index SHCOMP<\/a> and Hong Kong\u2019s Hang Seng Index HSI<\/a> are both down this month following double-digit growth after China ended its strict \u201czero-COVID\u201d restrictions<\/a> late last year.<\/p>\n From the archives (January 2023):<\/strong> Chinese have been snapping up flights abroad as Beijing puts zero-COVID restrictions in the rearview mirror and Chinese New Year nears<\/a><\/p>\n \u201cThe market has hit the wall after a strong rally from the bottom in late October 2022,\u201d Growth Investment\u2019s Hong told MarketWatch.<\/p>\n
\n \u2014 Michael Pettis, economist<\/span>
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\n \u2014 Hong Hao, chief economist, Grow Investment Group <\/span>
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