Chinese consumer spending picks up after Covid curbs lift

China’s consumer spending rose again in the first two months of 2023, an early sign of an economic recovery that the government has warned remains fragile after years of pandemic restrictions.

Retail sales rose 3.5 percent year over year in the first two months of 2023, compared to declines in each of the previous three months. The activity of the indebted real estate sector also showed a positive trajectory.

The data, part of the first comprehensive survey of activity since Beijing lifted sweeping pandemic restrictions, pointed to a mixed economic picture, with the momentum of the recovery threatened by weaker global demand for Chinese exports and a lingering slowdown in the real estate sector.

China’s National Bureau of Statistics warned in a statement that the basis for economic recovery is “not yet solid”, and stated that the government will take measures to boost domestic consumption.

Chinese policymakers last week set an economic growth target of 5 percent by 2023, an ambitious figure that analysts say may have been designed to avoid falling short of expectations. China’s economy expanded by only 3 percent in 2022.

Achieving the goal would still not be an easy task, warned the new Prime Minister Li Qiang on Monday at the closing of the annual Chinese Parliament, as the country recovers from the economic malaise caused by the epidemic.

The expected retail sales figures were closely watched given the impact of China’s zero-Covid lockdown and mass testing regime on consumption. Retail sales fell in both 2020 and 2022 – the first annual decline since the late 1960s.

“We’ve always felt that the recovery would be consumer-led, and I think we’re starting to see it start,” said Louise Loo, chief China economist at Oxford Economics, adding that while momentum had picked up, it was still relatively weak.

“The recovery has started in earnest, but it hasn’t really been the booming reopening that people were expecting,” he said.

China’s reopening began in December last year and took place gradually against the backdrop of national epidemics, with the government lifting quarantine rules for travelers in January and allowing foreign tourists to re-enter the country only this week.

Other data for the first two months of the year were mixed. Fixed asset investments rose by 5.5 percent year-on-year, beating expectations. Industrial production, the engine of growth in the early stages of the epidemic, increased by 2.4 percent compared to the previous year. Urban unemployment was slightly higher at 5.6 percent.

“Compared to other post-pandemic countries, China’s recovery is relatively weak,” said Ting Lu, Nomura’s chief China economist.

In the real estate sector, which has been suffering from a liquidity crisis since the end of 2021, the indicators generally showed an improvement compared to the end of 2022.

According to the statistical office, real estate investments fell by 5.7 percent year-on-year in January and February, which is slower than the 12.2 percent decline in December. Real estate sales by floor area decreased by 3.6 percent compared to the same period last year, which is stronger than the 31.5 percent contraction in December, while the decrease of new constructions by floor area decreased by 9.4 percent compared to December’s 44.3 percent.

The manufacturing industry and infrastructure investments grew by 8.1 and 9 percent, respectively.

Even within the positive retail sales data, various components indicated an uneven recovery. Lu reported a year-on-year decline in car sales of 9.4 percent in January and February, compared with a 4.6 percent increase in December.

China publishes January and February economic data due to disruptions during the Lunar New Year holiday.

Lu said further weakness would make the recovery more difficult, but he forecast retail sales would be better overall in March, as data from January was disrupted by a wave of exits from China’s Covid infections.