China's economy grew at a slightly faster-than-expected pace of 6.8 percent in the first quarter, buoyed by strong consumer demand and robust property investment. Resilience in the world's second-largest economy will likely keep a synchronized global recovery on track for a while longer, even as China faces rising tensions with the United States that could impact billions of dollars in trade.
But economists still expect China to lose 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.
March retail sales 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 retail sales data 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 China economist at ING in Hong Kong.
China's export sector also posted solid growth in the first quarter, with shipments to the US jumping 14.8 percent on-year. Some analysts have speculated Chinese firms may have rushed out deliveries to the US as tariff threats loomed. However, net exports overall were a drag on GDP growth in the quarter after giving an added boost to the economy last year, highlighting the need for sustained strength in domestic demand if significant new tariffs are imposed.
"We don't expect (the US-China 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 China economist at JP Morgan in Hong Kong. Analysts polled by Reuters had expected January-March GDP to grow 6.7 percent from a year earlier, slowing marginally from the pace in late 2017.
China's GDP has now grown 6.8 percent for three straight quarters, a remarkably steady pace for such a large and dynamic economy and reinforcing concerns about the reliability of official data. On a quarterly seasonally adjusted basis, GDP grew 1.4 percent, slightly less than expected and easing from 1.6 percent in October-December, again suggesting the economy may be losing some steam.
Still, growth 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. 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.
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. Real estate investment 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. 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.
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