China’s GDP grew at an annualized pace of 4.5% in the first quarter of 2023 which is higher than the 4% which analysts polled by Reuters had expected and marks the fastest pace of expansion in a year.
Last year, China’s GDP expanded by 3% which was below the 5.5% which the country originally targeted. Amid a structurally slowing economy and growing dissent against its zero-COVID policy, China eased the lockdown rules last year.
For 2023, the country is targeting GDP growth of “around 5%” which if achieved would still make it among the fastest-growing major economy.
China’s GDP surpassed estimates in Q1 2023
China’s GDP surpassed estimates in Q1 led by the strong growth in March retail sales which rose 10.6% – higher than the 7.9% which analysts had expected. The rebound in retail sales is welcome news as retail spending in the world’s largest economy slumped last year amid the COVID-19 restrictions.
During their earnings release for the December quarter, Alibaba said that online physical goods gross merchandise value on Tmall and Taobao “declined mid-single-digit year-over-year, mainly due to soft consumption demand and ongoing competition as well as a surge in COVID-19 cases in China that resulted in supply chain and logistics disruptions in December.”
Alibaba business restructuring
Recently Alibaba announced a business restructuring and said that it would become a holding company – splitting the business into six units. These are The Taobao Tmall Commerce Group, Cainiao Smart Logistics, Local Services Group, Global Digital Commerce Group, Cloud Intelligence Group, and Digital Media and Entertainment Group.
Alibaba said that the move would help it unlock stockholder value. In his remarks, BABA CEO Daniel Zhang said, “This transformation will empower all our businesses to become more agile, enhance decision-making, and enable faster responses to market changes.”
The Cloud Intelligence Group would house the company’s AI business and would be led by the group CEO Daniel Zhang.
China’s economic recovery has been uneven
Meanwhile, even as China’s retail sales rebounded in March, some of the other indicators were soft. Fixed income spending for instance expanded 5.1% in the first three months of the year – below the 5.7% that analysts were expecting.
Industrial output rose 3.9% in March which was slightly below the 4% that analysts were expecting.
However, the country’s exports – a key contributor to its economic growth – rose 14.8% in March. Analysts were expecting China’s exports to fall by 7% in the month. The country’s exports fell for five straight months before March amid a slowdown in developed economies.
China’s inflation is below 1%
While most of the world is battling high inflation, China is a different story altogether and the country’s CPI rose at an annualized pace of 0.7% in March – an 18-month low.
While central banks in almost all the economies are on a rate hiking spree and Fed has raised rates to the highest since October 2007, China’s central bank has instead been following an accommodative monetary policy.
Amid low inflation and still uneven economic recovery, analysts expect the country to loosen the monetary policy even further.
After China’s March CPI came in below estimates, Zhou Hao, an economist at Guotai Junan International said “China’s March inflation report suggests that the Chinese economy is running a disinflation process, which points to bigger room for monetary policy easing to boost demand.”
China’s tech crackdown seems to be over
China cracked down on its tech sector in 2021 which eventually led to the delisting of Didi from the US markets. It also cracked down on sectors like edtech, video games, and delivery companies as President Xi Jinping pushed forward his “common prosperity” agenda.
However, over the last few months, China has taken several decisions which show that the country is now warming up to the tech sector. It allowed the downloads of Didi apps, approved Ant Financial’s request to raise capital, and also announced overseas listing rules for domestic companies.
Many see Jack Ma’s reappearance in China after spending almost a year abroad as a sign of China warming up to the tech sector.
Jack Ma returned to China
As Stephen Roach, a senior fellow at Yale University told CNBC, “Jack just didn’t show up in Hangzhou because he was tired of traveling around. I think it was well orchestrated and fits with the government’s campaign to demonstrate that, you know, they are relaxing pressures on their private sectors and are welcoming the rest of the world.”
China incidentally has of late warmed up to foreign tech companies also and has hosted several foreign tech executives including Apple CEO Tim Cook.
Tesla also announced a megapack factory in Shanghai and the company’s CEO Elon Musk is reportedly looking to visit China this month where he might meet with the country’s top leadership.
While China’s GDP surpassed estimates in the first quarter, the road ahead looks bumpy, especially given its soaring relations with the West.
It’s therefore no wonder that the country is now embracing both domestic and foreign tech companies amid the escalating tech war with the US.
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