China reports improved retail sales and industrial production amid growth concerns

China's consumption, industrial production, and investment from January to February this year produced good results that met or even exceeded market expectations. However, concerns have been raised about the need for additional domestic stimulus measures, as the real estate market and inflation remain in a slump, and exports, which were the biggest growth driver last year, are struggling due to U.S.-China trade tensions. As the direction of indicators diverges and the U.S. tariff attacks are still in their early stages, the Chinese government's concerns about the intensity of its policies are expected to deepen.

On the 17th, China's National Bureau of Statistics announced that retail sales from January to February amounted to 8.3731 trillion yuan (about 1,675.8 trillion won), an increase of 4.0% compared to the same period last year. Although this was lower than the growth rate recorded in January-February last year (5.5%), it was an expansion from the previous month (3.7%) and aligned with market expectations compiled by Reuters. China combines the data for retail sales and production for January and February, as the impact of the Lunar New Year holiday varies each year between late January and early February, making accurate year-on-year comparisons difficult. Retail sales constitute a gauge of domestic economic activity, comprising revenue from various types of retail outlets, including department stores and convenience stores.

This indicator saw a 4.8% increase compared to a year earlier in October, but then dropped to 3.0% in November, raising concerns about domestic sluggishness. However, it rebounded to 3.7% in December and again to 4% in January-February. This is interpreted as the effect of the government's new 'exchange' policy, which provides subsidies for exchanging old appliances and electronics for new ones, that was expanded from this year. Helen Chiao, chief economist at Bank of America (BOA) in China, noted, "It’s a good and comfortable range, and while additional policy stimulus is still needed, the growth is not weak enough to warrant much concern before the policies kick in."

The industrial production, which is considered monthly gross domestic product (GDP), increased by 5.9% year-on-year from January to February. While this was slower than the rise seen in January-February last year (7.0%) and December (6.2%), it exceeded the market expectation of 5.3%. Notably, the production of private enterprises (6.7%) increased faster than that of state-owned enterprises (3.7%), which is encouraging. Fixed asset investment, which reflects changes in capital investments in factories, roads, power grids, and real estate, excluding rural areas, recorded 4.1%, higher than the market expectation of 3.6%. This marks the first instance of the fixed asset investment growth rate rising to 4% since the 4.0% recorded in January-May last year.

Unlike the encouraging trends in consumption, production, and investment, there are still sectors in recession, with real estate being the most representative. In January-February, the investment in real estate development was 1.072 trillion yuan (about 214.2 trillion won), a decrease of 9.8% compared to the same period last year. However, this decline was less severe than the drop recorded in January-December last year (-10.6%). The nationwide urban unemployment rate in January-February also recorded 5.3%, which Reuters described as "the highest level in two years." Earlier announced indicators were also bleak. The report released on the 7th showed that exports in January-February increased by 2.3% (in U.S. dollar terms) compared to the same period last year, falling significantly short of the market expectation of 5.0%, and the consumer price index (CPI) rise reported on the 10th fell by 0.7% compared to a year ago, indicating a return to negative growth for the first time in 13 months.

The divergence in these indicators could threaten China's economic growth target of around 5% this year. The risks of this imbalance are likely to deepen as time goes on, especially since U.S. President Donald Trump continually applies tariff pressures on China, making it inevitable that exports, which accounted for one-third of last year's growth, will continue to decline. This is particularly critical given that domestic demand has not yet fully recovered. Consequently, China has identified boosting consumption as its top priority for this year. On the 16th, it released a 'special action plan for consumer promotion' consisting of 30 measures. The core of this plan is to increase income through minimum wage hikes and stock market stabilization, and to actively create a favorable consumption environment by ensuring holidays. Nevertheless, the market still voices the need for more specific and large-scale support measures.

As some indicators show favorable levels, there is a possibility that China may take its time in determining the intensity of its policies. Xu Tianchen, chief economist at the Economist Intelligence Unit (EIU), a subsidiary of the British weekly The Economist, stated, "These indicators show that even if the (Chinese) economy remains in deflation (a decline in prices during a recession), it is expected to show favorable momentum for several months at the beginning of the year," according to Reuters. The fact that the U.S.-China trade war is still considered to be in its early stages also strengthens the cautious perspective of China.