Policies and External Demand Boost Economic Improvement



Date: Apr 20, 2024

In the first quarter of 2024, the economy improved overall due to the combined effect of recovering external demand, the sustained impact of earlier policies, the timing of the Spring Festival, and changes in base figures. Major macroeconomic indicators remained generally stable, but data for March showed signs of marginal weakening compared to January and February. This weakening is partly due to the base effect but also requires close attention, indicating the need for sustained policy efforts.

Policies, among other factors, have contributed to the overall economic improvement. In the first quarter, GDP grew by 5.3% year-on-year at constant prices, accelerating compared to both the fourth quarter and the entire previous year. The secondary industry played a significant role in this growth, with industrial added value increasing by 6.0% year-on-year, and manufacturing added value rising by 6.4%. Moreover, modern service industries maintained a strong development momentum: in the first quarter, the added value of information transmission, software and information technology services, leasing and business services, and financial services grew by 13.7%, 10.8%, and 5.2% year-on-year, respectively, collectively driving a 2.7 percentage point increase in the service industry’s added value. Marginally, the composite PMI output index, the manufacturing PMI, and the non-manufacturing business activity index all rose in March compared to the previous month, and all remained above the threshold line, indicating accelerated economic expansion.

A low base and external demand have bolstered improvements in exports. In the first quarter, exports and imports, denominated in RMB, grew by 4.9% and 5.0% respectively year-on-year, marking a rebound from the previous year’s fourth quarter. Looking regionally, while growth in exports to developed economies like the United States and the European Union slowed, there was a resurgence in growth in exports to Japan, South Korea, and the Chinese Taiwan region, with a concurrent recovery in growth in exports to ASEAN countries. In terms of products, driven by the rebound in global demand and the concurrent upturn in the global semiconductor cycle, exports of computer electronics industry chain products, represented by integrated circuits and automatic data processing equipment, saw a seasonally adjusted increase. Notably, March saw increased export growth rates for mobile phones, integrated circuits, and automatic data processing equipment, sequentially boosting the overall export growth rate by 0.5, 0.3, and 0.2 percentage points respectively compared to the previous month.

The growth rate of industries above designated scale accelerated overall. In the first quarter, industries above designated scale grew by 6.1% year-on-year, marking a 0.1 percentage point increase in growth compared to the fourth quarter of the previous year, continuing the trend of recovery. Looking at the three major categories, the growth rate of manufacturing increased by 0.4 percentage points to 6.7% compared to the fourth quarter of the previous year, while the growth rate of electricity, heat, gas, and water production and supply increased by 0.5 percentage points to 6.9%, both being the main drivers behind industrial recovery. Influenced by factors such as the timing of the Spring Festival and slow resumption of infrastructure and construction activities, the capacity utilization rates of industry and manufacturing fell to 73.6% and 73.8%, respectively, in the first quarter.

Policies, among other factors, have contributed to the rebound in investment growth. In the first quarter, the year-on-year growth rate of investment accelerated by 0.3 percentage points to 4.5%, compared to January and February, and increased by 1.5 percentage points compared to the previous year. Investment growth excluding real estate, however, reached 9.3%, highlighting the continued significant impact of real estate on investment growth. With the impact of policy support and other factors, investment growth in the high-tech manufacturing sector accelerated by 0.8 percentage points to 10.8% year-on-year in the first quarter, compared to January and February, and in turn drove investment growth in manufacturing to 9.9%.

Overall, consumer spending growth remained relatively stable in the first quarter. Total retail sales of consumer goods grew by 4.7% year-on-year, indicating slight slowing trends. As consumption policy measures were implemented, consumer potential accelerated, and commodity consumption steadily rebounded. Sales of essential goods were robust, with retail sales of grain and oil products and beverages increasing by 9.6% and 6.5% respectively. From a marginal perspective, the year-on-year growth rate of total retail sales of consumer goods slowed significantly to 3.1% in March, possibly due to a higher base last year. Meanwhile, rapid growth in consumption of travel and entertainment-related services continued to drive consumer spending.