China's economic growth beats forecasts

China’s economy got off to a surprisingly buoyant start in 2022, official data showed on Tuesday, easily beating all expectations.

According to the National Statistics Bureau, industrial production grew by 7.5% year-on-year in the year to January-February. That's weaker than December’s year-to-date rise of 9.6% but above analyst expectations for growth of just 4%.

Retail sales growth was 6.7% compared to 12.5% in the year-to-date in December, but was well ahead of consensus for 3.0%, helped by the Lunar New Year holidays and the Winter Olympic Games.

Growth in fixed asset investment, meanwhile, soared to 12.2% compared to 4.9% in December and consensus for 5.0% growth.

The jobless rate also beat forecasts, however, rising to 5.5% in February from 5.1% in December. Consensus had been for the rate to remain unchanged.

The data came as the People’s Bank of China surprised the market by keeping the rate on its one-year medium term lending facility loans unchanged, at 2.85%. Most had been expecting a cut.

Iris Pang, chief economist, Greater China, at ING, noted: "The highlight for us was the strength of retail sales. This is even more notable during a period of strict flow control during the Chinese New Year holidays. This better-than-expected news has enabled the PBoC to hold policy rates steady."

Craig Botham, chief China+ economist at Pantheon Macroeconomics, said: "Every key activity data point for China in February came in above all expectations: not one economist surveyed by Bloomberg expected anything close to the reported figures for industrial production, retail sales or investment.

"Stronger investment activity will have supported industrial production.

"As for retail sales, some of the unexpected strength in January/February seems a likely unwinding of the unexpected weakness in December, when retail sales grew by just 1.7%."

Looking ahead, however, he cautioned: "It is still important to note that activity slowed at the start of 2022, with the exception on overall investment, just by less than expected."

Mitul Kotecha, chief EM Asia and Europe strategist at TD Securities, said: "The data is obscured by the impact of the Lunar New Year holidays, but suggest that the slowing in activity was less severe than feared in the first couple of the months of the year.

"Nonetheless, China’s manufacturing PMI is barely expanding, exports outlook is dimming, while price pressures are rising, suggesting headwinds ahead.

"Separately there may be growing caution over the potential of secondary sanctions on China, which could weight on activity in the weeks ahead. Retail spending is likely to have been impacted by the ongoing caution over Omicron, while intensifying lockdowns in several cities and provinces suggests that the consumer outlook is deteriorating."

The positive economic data failed to help lift Asian stock markets, with investors increasingly concerned about the resurgence of Covid in China as well as Beijing’s stance on Russia’s invasion of Ukraine.

Russ Mould, investment director at AJ Bell, said: "Asian markets were troubled for the second day in a row as investors weighed up the potential hit to corporate earnings and economic growth from new Covid lockdowns in China particularly in the electronics manufacturing sector where disruption to production could lead to another supply chain crisis.

"Ongoing uncertainty over whether China will provide military assistance to Russia also weighed on sentiment, with the Shanghai SE Index down nearly 5%."