China: The return of the consumer

China Macro: Retail sales bounce back

Due to the timing of the Lunar New Year, China’s activity data published today have been combined for January and February. In line with consensus expectations including ours, the data do confirm a broad rebound of economic activity following China’s rapid zero-Covid exit, with private consumption showing the largest potential for catching-up. Retail sales growth jumped back to positive territory, at +3.5% yoy ytd (December: -1.8% yoy), in line with consensus. Residential property bounced back strongly, growing by 3.5% yoy ytd as well (December: -28.3%). This confirms that the recovery of the real estate market is unfolding, with more signs of this coming earlier this year from house price developments in the largest cities, although weak mortgage lending volumes over February make clear that there is still a long way to go. Fixed investment also showed a clear improvement, accelerating to 5.5% yoy ytd (December: 5.1%, consensus: 4.5%), with infrastructure investment still outperforming and property investment bottoming out, at -5.7% yoy ytd versus -10.0% in December. Meanwhile, industrial production accelerated to 2.4% yoy ytd (December: 1.3% yoy, consensus: 2.6%), led by services. Notwithstanding the better activity data, the surveyed jobless rate did not show an improvement, edging up to 5.6% (December: 5.5%, consensus: 5.3%).

All in all, the data for January/February are in line with our view of a staged recovery in domestic demand and an acceleration in quarterly growth from Q1-2023 onwards. We expect annual growth to accelerate to 5.2% this year, up from 3.0% last year. This is in line with Beijing’s growth target of around 5.0% that was announced during the annual National People’s Congress last week, also see our take on the NPC here.