China Economic Roundup: April 2023

Our China economic roundup for April 2023 indicates an uneven but ongoing recovery process and missed market expectations on key indicators, such as industrial production, retail sales, and fixed asset investment. Policymakers will likely be targeting these to boost market confidence and economic performance in coming months.

China’s economy demonstrated remarkable resilience during the recovery process in April, following an impressive 4.5 percent GDP growth in Q1 of 2023. Major economic indicators, including industrial output, retail sales, and fixed asset investment, which were released by the National Bureau of Statistics (NBS) on May 16, indicate an upward trend across multiple areas of the economy.

Notably, high-tech industries recorded significant positive growth. Investment into high-tech industries grew by 14.7 percent year-on-year during the January to April period. The output of new energy vehicles rose 85.4 percent in April compared with the same period of last year.

Yet, there remains some instability with missed market expectations on key economic indicators, such as industrial production, retail sales, and fixed asset investment. Recent policy measures hope to redress this lag, enhance market confidence, stimulate demand, and encourage investment in the coming months.

In this article, we analyze data for key economic indicators from April 2023, examining their implications for China’s recovery and the potential impact on foreign direct investment (FDI).

China’s positive but uneven economic recovery in April

Retail sales rebound steadily

In April, China’s consumer market demonstrated increased vitality as the growth of market sales continued to accelerate, and consumer demand increased. Both urban and rural areas experienced robust growth in consumption, resulting in total retail sales of consumer goods amounting to RMB 3.491 trillion (US$ 0.49 trillion). This figure represents a year-on-year increase of 18.4 percent, surpassing March’s growth rate by 7.8 percentage points.

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The growth in commodity sales showed a notable acceleration, with a year-on-year increase of 15.9 percent. Categories such as cosmetics, jewelry, sporting goods, and communication equipment experienced double-digit growth, reflecting the rising demand for higher-end consumer goods. This creates a favorable environment for foreign companies aiming to introduce their brands and capture market share in China.

A comparison of online and offline retail sales reveals uneven growth within the consumer market. Online shopping experienced accelerated growth, with a 10.4 percent year-on-year increase in online retail sales of physical goods from January to April. In contrast, the recovery of offline retail sales were uneven, with convenience stores, department stores, and brand-exclusive stores witnessing year-on-year growth rates of 8.1 percent, 11.1 percent, and 2.9 percent, respectively. Furthermore, the proportion of online retail sales out of the total retail sales rose to 24.8 percent, marking a 0.6 percentage point increase compared to the first quarter of 2023. This significant share of online shopping presents notable opportunities for e-commerce platforms and digital retailers to expand their presence in the Chinese market.

Merchandise exports improve at a moderate pace

Merchandise exports experienced moderate growth in April, aligning with the global trend of cooling trade. As reported by China’s General Administration of Customs, there was an 8.5 percent year-on-year increase in merchandise exports during April. This growth rate was comparatively weaker than the robust 14.8 percent year-on-year surge witnessed in March. The figures add to signs of softness in global trade as spending slows in the U.S. and Europe, where consumers and businesses are confronting rising interest rates, inflation pressure, and an unstable banking sector.

Industrial output grows, high-tech sectors see double-digit growth

The value-added output of large-scale industrial enterprises with an annual main business income of RMB 20 million (US$ 2.86 million) or more, exhibited a 5.6 percent year-on-year increase, representing a 1.7 percentage point improvement compared to March. The three major industrial sectors reflect uneven growth: the mining industry remained stable, while manufacturing recorded a growth of 6.5 percent, and the production and supply of electricity, heat, gas, and water rose by 4.8 percent.

Notably, the high-tech manufacturing sectors experienced remarkable month-on-month growth, particularly in the new energy and automobile manufacturing industry:

• Photovoltaic cells, lithium-ion batteries for automobiles, and charging piles saw increases of 69.1 percent, 55.5 percent, and 36.9 percent, respectively, compared to the same period last year.
• New energy vehicles surged 85.4 percent, representing a substantial acceleration of 52.1 percentage points compared to March.
• Polycrystalline silicon, monocrystalline silicon, and titanium sponge recorded increases of 89.3 percent, 60.7 percent, and 26.7 percent, respectively.

Additionally, the rebound in industrial exports during April deserves attention. The value of industrial exports demonstrated a noteworthy year-on-year increase of 0.7 percent, in stark contrast to the 5.4 percent decline observed in March. This recovery in demand for industrial products demonstrates a positive trend of the market.

Fixed asset investment slows, but high-tech sectors remain strong

During the period from January to April, fixed asset investment in China, excluding rural households, reached RMB 14.7482 trillion (US$2.09 trillion), a year-on-year increase of 4.7 percent. However, the growth rate experienced a slight decline of 0.4 percentage points, compared to the preceding January-March period.

Conversely, investment in the high-tech sector exhibited faster growth. From January to April, investment in high-tech industries recorded a year-on-year increase of 14.7 percent, surpassing the overall growth rate of fixed asset investment by 10 percentage points. Within the high-tech sector:

• Investment in electronic and communication equipment manufacturing grew 19.9 percent.
• Investment in medical instrument and apparatus manufacturing grew 19.4 percent.

Official efforts to address the falling PMI

China’s official manufacturing Purchasing Managers’ Index (PMI) declined from 51.9 in March to 49.2 in April, indicating a contraction in the sector. This drop suggests that current market demand remains insufficient and underscores the need to enhance internal development momentum. Nonetheless, a senior statistician from the NBS pointed out that the decline in manufacturing PMI was partially influenced by the high base effect in the first quarter due to rapid recovery in the manufacturing sector.

Despite the PMI drop, there are a couple of highlights from April’s data:

• The equipment manufacturing industry continued to exhibit an expansionary trend, with a PMI of 50.1 percent, remaining above the expansionary threshold. Both the production index and new orders index surpassed 51 percent, indicating positive growth in production and demand.
• The index for production and operation expectations stood at 54.7 percent, staying relatively high. This indicates that businesses retain confidence in recent market developments. Particularly, industries such as general equipment, special equipment, railways, shipbuilding, aerospace equipment, and electrical machinery exhibit production and operation expectations indices surpassing 60 percent, signifying a positive outlook for industry growth.

According to the National Development and Reform Commission, China will focus on unleashing consumption potential and establishing a high-quality consumption supply system in the following months. It is expected that more aggressive intervention to support the economy will be implemented, including optimization of the utilization of special local government bonds, funds from the central government budget, long-term loans to the manufacturing sector, and structural monetary policies.

China remains hot spot for FDI

The actual utilization of FDI in China grew 2.2 percent on a yearly basis, data from the Ministry of Commerce showed. FDI inflows from different countries have shown impressive growth rates. In the first four months of 2023, FDI from France surged 567.3 percent, from the UK grew 323.7 percent, Japan by 68.1 percent, and South Korea by 30.7 percent, compared to the same period of last year. This upswing in FDI momentum can be attributed, in part, to China’s newly implemented policies aimed at attracting foreign investments, along with the easing of COVID-19 restrictions.

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In January of this year, the Chinese government implemented a series of measures to support foreign-funded research and development centers. These measures include promoting technological innovation, enhancing the ease of conducting research and development activities, encouraging the recruitment of overseas talent, and strengthening intellectual property protection.

In the first quarter of this year, China witnessed a 4.9 percent year-on-year increase in FDI, reaching RMB 408.45 billion (US$ 57.88 billion). Although FDI growth slowed in the first four months of 2023 compared to the previous quarter, China’s continuous economic recovery and proactive measures to boost consumption and attract investment will enhance investor’s confidence in the country. This is crucial for China to maintain its growth momentum amid rising external uncertainties, such as geopolitical tensions and a challenging global economic landscape.

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