Strong retail sales help underpin China's economic recovery

China’s economic recovery continued at pace in the first two months of the year, official data showed on Monday, fuelled by a surge in retail sales and strong exports.

According to China’s National Bureau of Statistics, total retail sales rose by 33.8% year-on-year, compared to growth of 4.6% in December and above forecasts for growth of around 32.0%.

Industrial production surged 35.1% in the year-to-date, against 7.3% in December. The industrial production figure was also above consensus for 32.2% growth.

The total value of exports spiked 50.1% to 3,058.8bn yuan, while value of imports rose 14.5% to 675.9bn yuan.

China’s recovery from the impact of the Covid-19 pandemic has been driven by strong international trade, pent-up demand and government stimulus. Last year, its economy expanded by 2.3%, the only major economy to report positive growth in 2020.

However, Monday’s data did include some weaker numbers. Fixed asset investment, excluding rural, rose 35.1% year-on-year, missing consensus for 40.9% growth, while the unemployment rate increased to 5.5% from 5.2%, although analysts conceded it was in part distorted by holidays and shutdowns over the Lunar New Year.

The NBS said: "Compared with the same period last year, the year-on-year growth rates of major indicators were high due to low base of the same period in 2020. After deducting the base effects, major indicators grew steadily and macroeconomic indicators where within reasonable range."

David Madden, market analyst at CMC Markets, said: "The second-largest economy in the world is enjoying a robust rebound from the brutal lockdowns it incurred. It is especially encouraging to see the solid retail sales data as there were concerns that internal demand hasn’t been too hot lately."

Joshua Mahony, senior market analyst at IG, said: "With the February Covid lockdowns coming into play in this February to February comparison, the incredible readings for industrial production, retail sales and fixed asset investments highlights how the economy has rebounded over the course of the past year."

TD Securities said: "Seasonal distortions and base effects made this month’s data look particularly strong, but there was also underlying momentum in the data, which point to a solid expansion in GDP in the first quarter.

"Restricted travel of the Lunar New Year holiday period indicated upside risks to industrial production, as did the strength in exports. By industry, the data recorded broad against though autos and machinery recorded the biggest year-on-year gains.

"Similarly, retail spending was distorted by seasonal factors, but will also have benefited from reduced travel as consumers diverted spending on travel and tourism to the retail sector."