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China posts strong Q1 growth, hearty consumer demand buffers trade worries for now

Reuters  |  BEIJING 

By Elias Glenn

BEIJING (Reuters) - China's economy grew at a slightly faster-than-expected pace of 6.8 percent in the first quarter, buoyed by strong consumer demand, healthy exports and robust property investment.

Resilience in the world's second-largest economy will likely help keep a synchronized global recovery on track for a while longer, even as faces rising trade tensions with the that could impact billions of dollars in business.

But economists still expect will lose some momentum in coming quarters as Beijing forces local governments to scale back infrastructure projects to contain their debt, and as property sales cool further due to strict government controls on purchases to fight speculation.

Consumption, which accounted for almost 80 percent of economic growth in the first quarter, played a significant role in supporting the economy even as risks grew for Chinese exporters.

rose 10.1 percent from a year earlier, slightly more than expected and the strongest pace in four months, with consumers buying more of almost everything from cosmetics to furniture and home appliances.

"The tells you a lot about consumption. It is not seasonal - if you look at growth in cosmetics, spending on clothing, spending on automobiles, there has been a persistent trend for a few months," said Iris Pang, Greater at in Hong Kong.

"Consumption is really strong, there is strong wage growth in urban areas. We underestimated the power of consumption in "

First-quarter (GDP) growth was also backed by robust exports, with shipments to the U.S. jumping 14.8 percent on-year. Some analysts have speculated Chinese firms may have rushed out deliveries to the U.S. as tariff threats loomed.

"We don't expect (the U.S.-tensions) will evolve into a full-scale trade war, but we also argue this uncertainty will not disappear and we expect a bumpy road of negotiations. In terms of the impact of potential tariffs, it is pretty limited, particularly this year," said Haibin Zhu, chief at in Hong Kong.

"Even in the worst scenario that both countries start to implement the $50 billion tariffs, we're talking about a few tenths of a percentage point and most likely it will only start to affect the economy late this year and in 2019."


Analysts polled by had expected January-March GDP to grow 6.7 percent from a year earlier, slowing marginally from 6.8 percent in the previous two quarters but remaining remarkably steady for such a large and dynamic economy.

On a quarterly basis, GDP grew 1.4 percent, slightly less than expected and easing from 1.6 percent in October-December.

Growth has remained comfortably above the government's target of around 6.5 percent for the full year, giving policymakers room to further reduce risks in China's financial system and rein in pollution without stalling economic growth.

Authorities have repeated pledged to reduce a mountain of corporate debt in the name of national security, though they have moved cautiously to avoid stunting business activity.

Beijing has also stuck to its campaign of shuttering heavily polluting factories as it tries to encourage more sustainable and higher quality growth from sectors such as technology.

Smokestack industries have been a key focus of that pivot in industrial policy, even though it is weighing on China's

Industrial output expanded 6.0 percent in March on-year, the slowest pace in seven months. Analysts had predicted output growth would cool to 6.2 percent from 7.2 percent in the first two months of the year.

"Underneath the stable GDP growth is quite rapid rebalancing from industrial, investment and old economy sectors to consumption, services and new economy sectors like tech," said Robert Subbaraman, chief for excluding at Nomura in

"The more timely March data, however, point to nascent signs of a growth slowdown underway, led by these old economy sectors."


First-quarter readings on China's property sector, a key economic driver, were mixed but also appeared to reflect the growing influence of changing government policies.

accelerated to 10.4 percent in the quarter - the fastest pace in three years - compared with a 9.9 percent rise in the first two months of this year.

Analysts say a significant rise in land prices, as well as a government push to build more public housing, could have contributed to the unexpected strength in the headline figure and a jump in construction starts.

Property sales, however, continued to slow amid a flurry of government measures to get soaring home prices under control. Sales by floor area rose 3.6 percent in the quarter, easing from earlier in the year.

Fixed-asset investment has also faltered as Beijing urges local governments to refrain from rampant borrowing to finance glamour projects to beat economic growth targets.

January-March fixed-asset investment growth slowed to 7.5 percent, below expectations and 7.9 percent in January-February.

Infrastructure investment rose 13 percent on-year, easing slightly from January-February.

Private-sector fixed-asset investment rose 8.9 percent in January-March, accelerating from an increase of 8.1 percent in the first two months. Private investment accounts for about 60 percent of overall investment in

"The pickup in private investment this year is mainly the result of improving corporate profits from last year and government policy support. at the start of the year also helped," David Qu, a Shanghai-based at

Despite a more upbeat first quarter than expected, analysts still predict China's economic growth will slow to 6.5 percent this year, with the ongoing regulatory crackdown and U.S. trade dispute seen as key risks, a poll showed.

(Reporting by Elias Glenn; Additional reporting by and in BEIJING and Marius Zaharia in HONG KONG; Writing by Ryan Woo; Editing by Kim Coghill)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Tue, April 17 2018. 11:37 IST