Key Highlights:
- In the first quarter (January-March) of 2024, China's GDP growth exceeded market expectations with a YoY increase of 5.3% and a 1.6% uptick from Q4 2023.
- The strong manufacturing performance overshadowed the weak consumer spending in Q1. The secondary industry replaced the tertiary industry as the main driver of China's economic growth. Manufacturing, particularly high-tech manufacturing, played a significant role. The year-on-year slowdown in total retail sales value of consumer goods has lasted for four months in a row.
- Exports showed a marked recovery trend in Q1, contributing 14.5% to China's economic growth and driving GDP increase by 0.8 percentage points, contrasting with the 11.4% drag in 2023.
- Outlook: Q2 economic growth still faces downward pressure. Local government special bonds and ultra-long-term special government bonds will strongly support infrastructure investment. In terms of consumption, key focus should be paid to the implementation of policies aimed at boosting equipment renewals and the trade-ins of consumer goods.
High-tech manufacturing fuels GDP growth
The industrial sector contributed 37.3% to Q1 GDP growth, boosting the latter by almost 2 percentage points. The secondary industry, primarily comprising industrial and construction sectors, saw a 6% YoY increase in Q1. It surpassed the tertiary industry's 5% growth and became a key driver of GDP expansion.
The manufacturing sector, particularly high-tech manufacturing, played a significant role in driving the growth. The value added of manufacturing enterprises with annual main business revenue of 20 million yuan or more rose by 6.7% YoY in the first quarter, with the growth rate for high-tech manufacturing at 7.5%.
China's fixed asset investment increased by 4.5% YoY, with a 9.9% increase seen in the manufacturing sector, outpacing the 6.5% growth in infrastructure investment and a 9.5% drop in real estate. Specifically, investment in the high-tech industry rose by 11.4% YoY.
Note: All are YTD YoY growth rates; the chemical material sector is covered in the manufacturing category;
Source: China NBS, GL Consulting
Mechanical and electrical product exports up by 6.8%
China's exports grew amid recovering global manufacturing activities. In March, its industrial export delivery value rose by 1.4% YoY, marking a 1 percentage point increase from the January-February period. The growth rate has rebounded to positive territory since the start of 2024, breaking an eight-month trend of negative growth.
The new export order index - a related index of China's manufacturing PMI - returned to expansion at 51.3% in March after 12 consecutive months of contraction.
Exports of mechanical and electrical products, as well as labor-intensive products have shown impressive performance. Measured in CNY, the increases in Q1 exports of mechanical and electrical products, including computers, automobiles, and ships were much faster than the overall export growth, rising by 6.8% YoY and comprising 59.2% of the total export value. Exports of labor-intensive products such as textiles, garments, plastic products, and furniture grew by 9.1%, driven by US replenishment demands.
Source: China NBS, GL Consulting
Four straight months of falling retail sales growth
China's consumption was relatively weak in Q1 2024 as compared to 2023 when it contributed over 80% to the country's economic growth. In Q1, the national retail sales of consumer goods increased by 4.7% on a year-on-year basis but declined by 7% compared to the previous quarter. The year-on-year growth rate for total retail sales has been declining each month since November 2023.
The slowdown in consumption growth, partly due to a high base from last year, underscores the need to bolster the foundation for a consumption recovery. Looking ahead, focus will be on the implementation of policies aimed at promoting the renewals of equipment and the trade-ins of consumer goods.
To boost consumption and investment, China launched a large-scale program to promote equipment renewals and the trade-ins of consumer goods in key sectors such as industry, agriculture, construction, transportation, education, cultural tourism, and healthcare. This covers production equipment, commercial equipment, and durable consumer goods like automobiles, home appliances, and furnishings. China's annual investment in equipment renewals in industry, agriculture and other key sectors is estimated to exceed 5 trillion yuan nationwide, with that in the replacement of automobiles and home appliances surpassing 1 trillion yuan.
As of April 28, at least 14 provinces across the country have published local policies to support the trade-in program. Additionally, 10 regions have conducted surveys on the demand for equipment renewals and the trade-ins of consumer goods. Hunan, Yunnan, and Sichuan have requested province-wide surveys to gauge the demand.
Source: China NBS, GL Consulting
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Edited by Navy Liu: liuchuanjun@mysteel.com