Mixed Economic Outlook for China: GDP Growth, Real Estate Crisis, and International Consequences

China’s recent release of monthly and quarterly economic data, as well as President Xi Jinping’s meeting with German Chancellor Olaf Scholz in Beijing, have shed light on several key issues. While China’s gross domestic product increased by 5.3% in the first quarter, exceeding estimates, growth in retail sales and industrial production for March fell short of expectations. This indicates a mixed outlook for the economy, and the potential strong start to 2024 may already be showing signs of fading.

The real estate crisis continues to pose challenges for China, with home price declines narrowing in March but the property slump affecting other industries. Cement output plummeted by 22% in March, marking the largest monthly decline on record. Economists believe that policymakers need to provide more support and avoid becoming complacent. The positive GDP number could lead authorities to believe that further policy easing is unnecessary.

The economic data has contributed to negative sentiment affecting Asian stocks and emerging market currencies. The yuan weakened following a market fixing that was below expectations, and Chinese stocks experienced a significant drop. Small cap stocks were particularly impacted due to plans for stricter regulations.

During his meeting in Beijing, Scholz discussed trade, the war in Ukraine, and climate issues with Xi. The German Chancellor emphasized the importance of addressing overcapacity and improving treatment of foreign firms. This meeting highlighted the complexities of the economic relationship between China and Germany, as China remains Germany’s main trading partner.