China's Industrial Output Surges, but Challenges Persist for Economic Growth


China's industrial output exceeded expectations in the January-February period, according to data released by the National Bureau of Statistics (NBS), cited by Reuters on Monday (18/3). Industrial output rose by 7.0% in the first two months of this year, surpassing analysts' expectations of 5%. This marks the fastest growth in nearly two years.

Meanwhile, retail sales data increased by 5.5%, higher than analysts' expectations of 5.2%. However, the growth in retail sales, a measure of consumption, slowed from December 2023, which stood at 7.4%.

The eight-day Lunar New Year holiday in February saw a strong return of the travel sector, supporting revenue in the tourism and hospitality sectors.

Fixed asset investment increased by 4.2% in the first two months of 2024 compared to the same period last year, exceeding the expected increase of 3.2%.

Together with better-than-expected trade data and consumer inflation, the indicators released on Monday provide a temporary boost for policymakers as they seek to sustain the world's second-largest economy's growth at around 5% this year.

However, analysts say achieving this growth will be more challenging compared to last year, which had a lower base effect due to Covid restrictions in 2022.

Additionally, the property sector remains weak and could continue to be a major obstacle to a solid recovery this year.

Property investment declined by 9.0% year-on-year in January-February, compared to a 24.0% drop in December but still far from stable levels.

The NBS publishes combined data on industrial output and retail sales for January and February to smooth distortions caused by the timing shift of the Lunar New Year.

Activity picked up in the first two months of 2023 as Covid restrictions were lifted, which may create a less favorable base effect for this year's data.

Premier Li Qiang pledged at the early-March annual parliamentary meeting to reshape the country's growth model and reduce risks in the property sector and local government debt.

China plans to issue 1 trillion yuan of special long-term government bonds to support key sectors and set higher quotas for local government special bond issuance this year.

The central bank governor, Pan Gongsheng, also said at a press conference on March 6 that there is still room to cut the bank reserve requirement ratio (RRR) following the 50 basis point cut announced in January, the largest decrease in two years.

Financial News reported on Friday that the bank has no intention of actively draining cash after maintaining interest rates and withdrawing cash from medium-term policy lending operations for the first time in 16 months.

Authorities in January launched a white list mechanism, urging state-owned banks to increase lending for housing projects. Other major cities including Shanghai and Shenzhen have also loosened purchase restrictions to attract homebuyers.

The labor market worsened with the national survey-based unemployment rate at 5.3% in January-February, up from 5.1% in December.

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