Commentary Directory

China Economic Data: Jan-Feb 2024

Jacob Hess
March 18, 2024

China has released its legion of economic data which accounts for the performance of the economy in the first two months of the year. Across the board, it seems that expectations were beat in the major data points including the estimates for the annual change in industrial production and retail sales.

  • Headline retail sales grew 5.5% YoY in Jan-Feb, down from 7.4% YoY in Dec, but above the 5.2% YoY expected by analysts. Food retail sales were exceptionally strong, up 9.0% YoY (vs 5.8% YoY in Dec), and was a large reason the headline number was better-than-expected. Unusual strength in construction & building materials was also notable. Sales in that segment had been down -7.5% YoY in Dec but were up 2.1% YoY in Jan-Feb. The general daily necessities category rebounded from being down -5.9% YoY in Dec to just -0.7% YoY which is a potential signal to be less pessimistic about the Chinese consumer.
  • The NBS spokesman also noted a strength in the service sector. The services sector production index was up 5.8% YoY with the accommodation & catering industry up by 12.1% YoY, and the transportation, warehousing and postal services increased by 7.1% YoY. This matches the 5.8% YoY growth seen in 2023. Additionally, retail sales of services were up 12.3% YoY, extending strength in 2023 where services retail sales were up 20.0%.
  • Industrial production saw an even stronger beat than retail sales coming in at 7.0% YoY when the consensus estimate was just 5.0% YoY. Manufacturing production growth accelerated to 7.7% YoY in Jan-Feb from 7.1% YoY in Dec powered by high-tech manufacturing up 7.5% YoY (vs 6.4% YoY in Dec). The expansion of growth was evident in private industry, a segment of the economy that has been struggling under tough financial conditions, as it expanded 6.5% YoY (vs 5.4% YoY in Dec and 3.1% in all of 2023). While export continue to struggle a bit, there was positive growth of 0.4% YoY in Jan-Feb which is much better than the contraction of -3.2% YoY in Dec. In terms of specific industries, several metals adjacent industries were on the rise including non-ferrous metal (+12.5% YoY) and ferrous metal (+8.7% YoY). There was also an acceleration in computers & electronics manufacturing, up 14.6% YoY vs 9.6% YoY previously, which is an area of focus for Beijing.
  • With financial conditions being a major concern for China given troubles in the real estate sector, analysts expected credit growth to be weaker than the 4.2% YoY seen in Jan-Feb at 3.2% YoY. Though it was softer than the 5.5% YoY reported in Jan-Feb 2023. Investment in private firms flipped from negative in Dec at -0.4% YoY to positive in Jan-Feb at 0.4% YoY, while state-owned investment growth accelerated from 6.4% YoY in Dec to 7.3% YoY. A number that sticks out in this report is the -14.1% YoY drop in investment into foreign-invested enterprises (0.6% YoY in Dec). Investment growth in domestic enterprises (4.1% YoY) and Hong Kong, Macao, and Taiwan invested enterprises (6.4% YoY) both expanded to offset that drop.
  • While data in other segments of the economy could be viewed as rosy, data out of the real estate segment could not. National investment in real estate development was down -9.0% YoY, starting off the year horribly. For comparison, real estate investment was only down -5.7% YoY in Jan-Feb 2023. That’s not even the worst of it. Sales of newly built commercial buildings were down -29.3% YoY, sharply lower than -6.5% YoY in Dec. Funding for real estate development firms was also much lower, down -24.1% YoY in Jan-Feb vs -13.6% YoY in Dec. With the Chinese government making it clear that it will not bail out troubled real estate firms, it seems probable that these data points will trend this low throughout 2024.