China's Economic Resilience Shines in First Quarter Performance

China’s economy surged ahead in the first quarter of the year, outpacing expectations due to government policies aimed at fostering growth and increased demand. Official reports indicate that the world’s second-largest economy expanded by 5.3% annually from January to March, surpassing analysts' projections of approximately 4.8%. This growth represents a 1.6% increase compared to the previous quarter. Despite grappling with the aftermath of the COVID-19 pandemic and challenges such as a slowdown in demand and a property market crisis, China's economy showed resilience.

The positive data contradicted recent reports of a 7.5% decline in exports and weakened imports for March, alongside cooling inflation, indicating deflationary pressures amid the property sector's crisis. Nonetheless, industrial output saw a 6.1% increase year-on-year for the first quarter, and retail sales grew by 4.7% annually. Fixed investment in factories and equipment also rose by 4.5% compared to the same period last year.

The robust growth in January-March was attributed to several factors, including strong manufacturing performance, increased household spending due to Lunar New Year celebrations, and supportive policies driving investments, as noted by China economist Louise Loo of Oxford Economics. However, Loo cautioned that indicators for March suggest a post-holiday slowdown, while external demand conditions remain uncertain, exemplified by March's significant export decline.

Loo highlighted factors such as inventory adjustments, normalized household spending post-holidays, and a cautious approach to government stimulus that could influence growth in the current quarter. In response to economic challenges, policymakers have introduced various fiscal and monetary measures to stimulate the economy, with China setting a growth target of around 5% for its gross domestic product (GDP) in 2024.

Despite the typically positive impact of strong growth on regional stock markets, Asian shares fell sharply following Wall Street's retreat on Tuesday. The Shanghai Composite index dropped by 1.4%, the Hang Seng in Hong Kong lost 1.9%, and the Shenzhen benchmark decreased by 2.8%. While stronger growth in China typically benefits its neighboring economies, the data also suggests that the government may refrain from further stimulus measures.