China retail sales and industrial data for first 2 months beat expectations

BEIJING — China’s economic data for the first two months of the year beat analysts’ expectations across the board on Monday.

Retail sales rose 5.5%, better than a Reuters forecast of 5.2%, and industrial production rose 7%, compared with estimates of a 5% rise.

Investments in fixed assets grew by 4.2%, which is more than the 3.2% predicted by analysts.

The unemployment rate in cities in February was 5.3%.

In the first two months of the year, online retail sales of physical goods rose 14.4% from a year earlier.

Property investment fell 9% in the first two months of the year compared to last year. During this time, investment in infrastructure increased by 6.3%, and in manufacturing by 9.4%.

“We believe China’s sequential growth momentum remained strong in the first quarter, despite notable sector divergences,” Goldman Sachs analysts said in a report Monday after the data was released.

“However, further policy easing, especially on the demand side (eg fiscal, housing and consumption) is still needed to achieve the ambitious growth target of ‘around 5%’ this year.”

Despite the optimistic results, National Bureau of Statistics spokesman Liu Aihua warned that domestic demand remains insufficient.

She told reporters that real estate is in a period of “reconstruction” and the overall economy is “in a critical period of recovery, transformation and modernization,” according to a CNBC translation of her comments into Chinese.

Asked about the unemployment rate for people aged 16 to 24, Liu said the data would be released a few days after the monthly news conference on economic data.

Economic indicators for January and February in China are usually combined to smooth out deviations from the Lunar New Year, which can fall in any month depending on the calendar year. It is the country’s largest national holiday, during which factories and businesses remain closed for at least a week.

This year, domestic tourism travel and holiday earnings are up from last year, as well as from 2019 before the pandemic. But Nomura’s chief China economist Ting Lu noted that “average tourism spending per trip was still 9.5% below pre-pandemic levels in 2019.”

Retail sales have not recovered from the pandemic as strongly as many expected, as consumers have become uncertain about their future incomes.

“At the beginning of the year, consumers were temporarily supported by holiday-related spending. In the absence of strong consumption-related stimulus this year, we think it will be difficult to maintain a sustainable pace of consumer spending this year,” the Oxford Economics chief said. Economist Louise Lu said in a report on Monday.

New loans in February missed expectations and fell from the previous month “even when adjusted for seasonality,” Goldman Sachs analysts said in a report Friday.

“Persistent weakness in real estate transactions and weak consumer sentiment may continue to weigh on household borrowing,” analysts said. “Further easing of monetary policy is necessary.”

People’s Bank of China Governor Pan Gongsheng said earlier this month that there was still room to reduce the reserve requirement ratio, or the amount of cash banks must keep on hand.

Goldman expects the ratio to contract by 25 basis points in the second quarter of this year, as well as in the fourth quarter.

Real estate, which accounts for a large portion of household assets, has fallen sharply in the past few years following Beijing’s crackdown on developers’ high reliance on debt for growth.

Average property prices in 70 major Chinese cities fell 4.5% in February from January on a seasonally adjusted and year-on-year basis, according to a Goldman Sachs analysis using a weighted average of official data.

That’s steeper than the 3.5% month-on-month fall in home prices in January, according to Goldman Sachs.

“Our high-frequency tracker shows that across 30 cities, new home transactions are down 53.2%. [year-on-year] in early March after adaptation to the lunar calendar,” the analysts’ report said.

Chinese authorities did not announce significant new support for the mainstream real estate sector during the annual parliamentary meeting that ended last week.

Instead, Beijing emphasized that the country places special emphasis on developing manufacturing and technological capabilities.

Asked on Monday about overcapacity issues, Liu said China’s capacity utilization rate was 76% in the fourth quarter, up 0.2 percentage points from a year earlier.

She called efforts to improve the level of high-tech manufacturing “a strategic decision to achieve high-quality development,” while noting that efforts are needed to prevent inefficient and inefficient investments in the sector.

Data earlier this month showed China’s exports rose 7.1% in dollar terms for January and February, beating expectations for a 1.9% increase.

Imports rose 3.5% during that time, also beating Reuters’ forecast of 1.5% growth.