China's first-quarter GDP exceeds expectations despite lingering economic weakness

Beijing: China's economy surpassed expectations in the first quarter of the year, according to data released on Tuesday, offering a glimmer of optimism amid ongoing challenges, particularly in the property sector and rising local government debt.

The National Bureau of Statistics revealed that the country's gross domestic product (GDP) grew by 5.3% year-on-year in the January-March period.

This growth rate exceeded the 4.6% increase forecast by analysts in a Reuters poll and outpaced the 5.2% growth seen in the previous quarter.

Harry Murphy Cruise, an economist at Moody’s Analytics, commented on the robust first-quarter growth figure, stating, "The strong first-quarter growth figure goes a long way in achieving China’s 'around 5%' target for the year."

Cruise also noted, "Industrial production also supported through the quarter, but weak March data is cause for some concern. Similarly concerning, China’s households continue to keep their wallets closed."

Every quarter, China's GDP expanded by 1.6% in the first quarter, slightly above the forecasted 1.4% growth.

Despite the positive GDP figures, China's economy continues to grapple with several challenges.

The property sector remains a significant concern, with March data revealing a sharp decline in property investment and sales. Property investment fell by 16.8% year-on-year in March, a more substantial drop compared to the 9.0% decline in January-February. Meanwhile, sales plummeted by 23.7%, worsening from a 20.5% fall in the first two months of the year, reported Reuters.

The broader economic indicators for March, including industrial output, retail sales, and bank lending, also painted a picture of subdued domestic demand. Industrial output grew by 4.5% year-on-year in March, lower than the forecasted 6.0%, while retail sales, a key gauge of consumption, increased by 3.1%, below the expected 4.6% rise.

American credit rating agency Fitch recently downgraded China's sovereign credit rating outlook to negative, citing risks to public finances as Beijing directs more spending towards infrastructure and high-tech manufacturing.

Alvin Tan, head of Asia FX strategy at RBC Capital Markets in Singapore, expressed concerns about the momentum of China's economic growth. "On the face of it, the headline number looks good... but I think the momentum is actually quite weak at the end," Tan said.

Looking ahead, policymakers in China face the daunting task of balancing economic stimulus measures with structural reforms. The People's Bank of China (PBOC) has indicated plans to provide further policy support for the economy this year, with expectations of additional cuts in banks' reserve requirement ratios and interest rates.

Jinyue Dong, senior economist at BBVA research, highlighted the ongoing risks facing China's economic recovery. "Recovery has not got a solid foundation yet as the deep adjustment of the real estate market and local government debt overhang still remain the main risks," Dong said. "In addition, geopolitics risks mostly due to China-U.S. confrontations before the U.S. presidential elections will persist in the foreseeable future."