China's gross domestic product for the first quarter of 2023 grew 4.5% year-on-year as consumer indicators recovered, but other data points such as property and private investments suggest a mixed post-reopening recovery, according to new data released on Tuesday.
The GDP growth beat market expectations, which were at 4%. Experts anticipate that second-quarter GDP will increase even further, considering the low base of last year's numbers (0.4%), which were depressed by Shanghai lockdowns.
Consumer-related indicators were positive, with retail sales rising 10.6% year-on-year in March, compared with February's 3.5% growth. Food services also rose 26.3% in March, up from 9.2% the previous month.
"Infrastructure investment remained an important stabilizer, up 8.5% (year-on-year) in the first three months," Chaoping Zhu, Shanghai-based global market strategist at J.P. Morgan Asset Management said in a commentary. The firm has $2.5 trillion in assets under management.
"Industrial production grew by 3.9% (year-on-year), highlighting strong momentum in advanced manufacturing such as electric vehicles (up 33.3%)," he added.
However, the data showed that China still faces challenges to its economic growth, experts said. For instance, during the quarter, private investments grew only 0.6% year-on-year and real estate investments fell 5.8%.
"Policymakers might maintain a tone for proactive fiscal policy and prudential monetary policy, while structural measures might be adopted to address those weaknesses. There might be cuts to deposit rate and five-year LPR (loan prime rate), so as to lower fund costs and support long-term business loans," Mr. Zhu said.
He added in an emailed response to questions that the government might release measures to boost business confidence and foreign direct investment by improving the regulatory environment for private enterprises, particularly in the internet sector.
Mr. Zhu believes that Chinese equities will outperform U.S. and global equities, and emerging markets in Asia could benefit from China's recovery and the attractive valuations.
"In previous months, overall earnings expectations for Chinese equities have been revised down given the cooling market sentiment. The strong economic data affirmed the recovery trend in the Chinese economy, which could be a catalyst for bottoming-out of earnings expectations," he said.
In the short-term, he is optimistic about consumer sectors. Longer-term, JPMAM prefers advanced manufacturing sectors, such as semiconductors, renewable energy, robotics and automation, "which should benefit from expanding domestic market and sustained policy support," Mr. Zhu said.
David Chao, global market strategist for Asia-Pacific (ex-Japan) at Invesco, said that he is also keeping an eye on consumption numbers, although the National Bureau of Statistics of China warned of inadequate domestic demand.
"New household deposits hit 9.9 trillion yuan ($1.4 billion) in Q1, jumping 27% (year-on-year) reflecting a high propensity to save, though we expect this to normalize as confidence builds through the year," Mr. Chao said in an email interview.
He added that market reaction to the data release on Tuesday was inconsistent. "Equities jumped slightly on the GDP beat and pared gains as the full set of data was digested," he said. "While the data release confirms China's cyclical upswing is indeed intact, foreign investors may well have additional concerns both geopolitical and structural in nature that have not been fully resolved. Seeing private sector confidence rebuild more meaningfully would likely be a good start."
