(Bloomberg) -- China reported a rebound in consumer spending, industrial output and investment this year after coronavirus restrictions were dropped, while warning of risks to the economy’s recovery as unemployment rose and real estate investment continued to slump.

Retail sales rose 3.5% in January and February compared to the same period last year, the National Bureau of Statistics said Wednesday. Industrial output rose 2.4% and fixed-asset investment grew strongly, as local governments increased infrastructure spending to spur the recovery. However, the unemployment rate increased, pointing to weakness in domestic demand.

The numbers were broadly in line with economists estimates and came after Beijing signaled that it would provide a similar fiscal stimulus to the economy as last year, betting on consumers to drive the recovery. Economists said the data was consistent with China meeting it’s target of around 5% GDP growth this year, a significant boost to global demand as the US and European economies face recession fears.

The data is “pointing to a steady rather than accelerating momentum, which also indicates strong policy support is needed to unleash the growth potential,” said Zhou Hao, chief economist at Guotai Junan International Holdings. “The relatively high jobless rate seems to suggest that the further recovery of consumption will hinge on policy dynamics,” he said.

The two-month data may not fully reflect recent strength in consumer spending, as it includes January when China was hit by a wave of coronavirus infections that followed the government’s sudden ending of Covid restrictions the previous month. Cases apparently peaked ahead of the Lunar New Year holiday in late January, prompting people to travel and spend again. Factories also benefited as workforce shortages due to Covid eased.

The value of new apartment sales over the period rose 3.5% on-year, compared with a 22% slump in the first two months of 2022. That recovery from a low base is a sign that Beijing’s financial support for the property sector is taking effect following a deep real estate slump which has lasted for more than a year. However, residential property investment fell 4.6%, meaning better sales are not yet leading to growth in housing investment which economists estimate drives up to 20% of demand in China’s economy. 

Beijing has refrained from providing cash stimulus to households, betting that a pick up in hiring by companies will boost wages and spending. However, China’s official urban unemployment rate rose to 5.6% from 5.5% in December, and the jobless rate for young people jumped to a six-month high of 18.1%.


“The problem of insufficient demand is still prominent. The economy’s foundation for rebounding is not yet secured,” the statistics bureau said in a statement.

The bureau combines the data releases for the two months of January and February to avoid distortions from the Lunar New Year holiday, which can fall in either month in different years.

Chinese stocks held on to their strong opening gains after the data as equity markets in the region recovered from recent losses triggered by concerns about the health of the US banking system. China’s CSI 300 Index of stocks rose 0.4% as of the midday break while futures contract on 10-year bonds fell 0.1%. The yuan was little changed.

The pickup in retail sales was driven by spending on medicine, petroleum products and catering, while automobile purchases slumped, according to the official data. Industrial output was driven by steel, coal and renewable energy equipment.

“This probably reinforces the view that even if we have a sequential upswing on China rebound on the back of the reopening, it’s not going to be like a big boom,” Johanna Chua, chief Asia Pacific economist at Citigroup Global Markets, said in an interview on Bloomberg TV. 

The spillover benefits of China’s rebound on other emerging markets will “be much more limited,” than in previous economic cycles, Chua said. “It’s really going to be more on the travel, tourist-depending economies around Southeast Asia,” she added.

Stronger Investment

The investment acceleration was driven by state-owned companies. Local governments boosted sales of special bonds to more than 800 billion yuan ($116 billion) in the first two months of the year to front-load spending in infrastructure. The issuance accounts for over a fifth of this year’s total allowance of 3.8 trillion yuan for such debt.

What Bloomberg Economics Says...

China’s first comprehensive set of “hard” data for the first two months of the year show the recovery is well underway — but isn’t as eye-popping as early survey data suggested. Retail sales swung back to growth, and industrial output accelerated. But the biggest driver was infrastructure investment — raising the risk that the growth spurt is overly dependent on government support.

For the full report, click here

Chang Shu and David Qu

Beijing set a relatively modest target for gross domestic product growth of around 5% for this year, signaling it will avoid any big stimulus through infrastructure investment or the property market. However, a fairly ambitious job creation goal of “around 12 million” suggests policy will remain supportive.

China’s new Premier Li Qiang said Monday the growth target “is not an easy task“ and “requires redoubled efforts.” The nation will prioritize stability in growth, prices and jobs, he said.

Earlier on Wednesday, the central bank boosted net cash injections into the financial system by the most since December 2020, providing banks with additional liquidity as demand for loans picks up.

The economy is expected to grow 5.3% this year, according to economists surveyed by Bloomberg, mainly driven by consumer spending. However, a number of risks cloud the outlook, including waning global demand, a struggling property market and rising geopolitical tensions.

“We expect China’s growth momentum to improve further in coming months, driven mainly by the ongoing consumption recovery and still-accommodative macro policy,” Goldman Sachs economists said in a note on the data.

--With assistance from Yujing Liu, Jing Zhao and Tom Hancock.

(Updates with more details in third paragraph, economist’s comment.)

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