China's economy shows signs of recovery

China’s economy strengthened in the first two months of 2023, official data showed on Wednesday, after the end of Covid restrictions boosted consumer spending.

According to data released by the National Bureau of Statistics, retail sales rose 3.5% year-on-year in the year to February, in line with consensus and reversing a 1.8% fall in December.

Industrial production also improved, ahead 2.4% compared to a 1.3% rise in December. The figure was slightly below expectations, however, for 2.6%.

China’s economy struggled last year as stringent rolling lockdowns hit both production and demand. Beijing's zero-Covid policy was abruptly dropped in December following rare public unrest.

The country’s vast property sector has also slumped after the government looked to crack down on soaring levels of debt. Real estate investment fell 5.7% year-on-year in the year to February, though that was an improvement on 2022’s 10% slump. Infrastructure investment, however, jumped 9%, driven by government spending as Beijing looked to support the economy.

Overall, fixed asset investment in the first two months of 2023 was 5.5% higher than a year before. In 2022, fixed asset investment grew by 5.1%.

Pantheon Macroeconomics said: "China’s economy began to revive in the first two months of the year, after the removal of the zero-Covid policy and the cresting of Covid exit waves in big cities in December.

"Consumer services staged a dramatic bounce back, in line with the experience of other countries after the withdrawal of Covid restrictions. Catering retail sales soared 9.2% after plunging 14.1% in December. The release of pent-up demand was particularly pronounced during the Lunar New Year holiday, where domestic tourism revenue surged 30% year-on-year."

Iris Pang, chief economist, Greater China at ING, said: "We retain our GDP forecast for China at 5% for 2023. The main reason is that although consumption should rise moderately, there are headwinds for China, including exports and local government debt that could derail infrastructure investment as well as the slow recovery of the real estate sector."

Earlier this month, China set a historically low growth target of "around 5%" for 2023. In 2022, growth was 3%, well below Beijing’s target of 5.5%.

The NBS publishes combined January and February data to smooth out distortions caused by the Lunar New Holiday, which does not fall on a set date each year.