Why did China's economy grow faster than expected in the first quarter?

CGTN Europe

CGTN Europe spoke to Marc Ostwald, Chief Economist & Global strategist with ADM Investor Services International

Transcript

00:00 Let's talk now to Mark Oswald, Chief Economist and Global Strategist at ADM

00:05 Investor Services International. Mark, welcome back, good to see you. So China's

00:09 economy grows 5.3 in the first quarter of this year, passing the analyst

00:16 expectations. Does this mean the pain is over?

00:20 Certainly not. I think there are a number of points of concern. One, the way that

00:27 the economy tailed off in March, if you looked at the monthly numbers, they were

00:31 considerably weaker than expected. I think the other big point of concern is

00:38 the infrastructure investment is clearly supporting the economy and that is a good

00:43 thing. And the call for more investment to the high-tech sector

00:50 is doubtless justified. However, there is this yawning gap emerging in

00:56 fixed asset investment between public sector, up 7.8% year-on-year, and the

01:02 private sector, 0.6%. So I think that my concern would be how sustainable is

01:10 that in the long run if all that public sector investment doesn't start to spill

01:14 over into the private sector and encourage people to actually start

01:20 investing in the private sector. Retail sales and the industrial output figures

01:27 fell rather short of forecast. I mean that will be a concern, won't it? Yes, it

01:33 will. I mean the industrial production numbers, one really has

01:37 to break down because there are patches of enormous strength. Anything which is

01:42 related to the energy transition, for instance, aluminium output, very strong.

01:47 On the other hand, you've got things like cement output was down 22% year-on-year.

01:52 You've got crude steel output down about 7%. That's all related to the

01:58 property sector which remains the Achilles heel. It's not an easy, it's not

02:04 something which is quickly resolvable. There's no magic wand which can be

02:09 particularly in terms of restoring, I think, consumer confidence in getting

02:15 involved. Other side of that coin is, on the other hand, if you look at things

02:19 like passenger numbers, if you look at which were up enormously and also

02:26 catering, i.e. demand for going out, that is actually very strong. So as much as

02:31 consumers may not be spending so much on their households, they're certainly going

02:35 out and enjoying themselves and, you know, particularly this similar pattern to

02:40 what we saw in Europe and North America post the lifting of Covid.

02:46 What are the implications of these trends if you just look at what we've talked

02:50 through in terms of China's economic outlook going forward over the next year or so?

02:54 I think in trend terms, I still think that China's probably more

03:01 likely to surprise on the upside this year than on the downside. However, the

03:08 concern would be if we keep on getting increased production, and in some

03:14 sectors you're already seeing it, you're getting a very big build-up of

03:17 inventories. At some point, a big build-up of inventories mean people want to start

03:22 to offload those inventories which crush margins and put corporate profits under

03:28 some pressure. And that's really where I think there's more support is going to

03:33 be needed as we go through the year to ensure that some confidence is restored

03:39 both to the consumer sector and indeed to the business sector in much broader

03:43 terms than the narrow focus on the high-tech and energy transition, even

03:48 though they are very important parts of the economy now.

03:51 Mark, good to see you. Thanks so much for coming on the programme again.

03:54 Mark Oswell, Chief Economist and Global Strategist at IDM Investor Services.

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