China’s economy beats consensus forecasts in first two months of 2024

Chinese President Xi Jinping

Chinese President Xi Jinping

Published Mar 26, 2024


By Helmo Preuss: Economist at Forecaster Ecosa

China’s recent data releases have beaten the consensus forecasts in the first two months of 2024 as the economy continues to power ahead. Chinese industrial production rose by 7.0% year-on-year (y/y) in the Lunar New Year (January and February combined) after a 6.8% y/y gain in December. This was better than the consensus forecast of a 5.0% y/y rise. In terms of sectors, the value added of the mining industry increased by 2.3% y/y, manufacturing rose by 7.7% y/y, while the production of electricity, heat power, gas and water grew by 7.9% y/y.

This above consensus forecast was not the only data point that points to a strong start to the year. Chinese retail sales rose by 5.5% y/y grew by in the first two months after a 7.4% y/y gain in December. This was better than the consensus forecast of a 5.2% y/y rise. The improvement was driven by a 12.3% y/y jump in the sales of services.

The good news is that it also boosts global coal demand with Chinese coal imports jumping by 22.9% y/y in the Lunar New Year to 74.52 million tons. This is reflected in the 15.9% y/y growth in bulk exports out of Richards Bay, most of which are coal, in the same period.

The Chinese government set a growth target of around 5% for this year after a 5.2% increase in 2023. The government said it would stabilise the property sector and resolve the problems with local government debt. The Chinese government has a good track record of reaching the annual growth targets which gives comfort to the rest of the world as China has consistently contributed around a third of global growth annually since the 2008 Global Financial Crisis.

President Xi Jinping in early March stressed developing new quality productive forces according to local conditions. The focus this year is therefore on new growth engines such as artificial intelligence, new materials, and innovative drugs, in addition to other Fourth Industrial Revolution sectors. An example of this innovation is the successful test run of China's first hydrogen-powered train reaching a speed of 160 kilometres per hour on 21 March. The train is equipped with a built-in hydrogen power system, which means its average energy consumption per kilometre is only 5 kWh and it can run for more than 1,000 kilometres.

This is an example of China’s focus on research and development (R&D) to boost economic growth. An example of how that has paid off is that China’s electric vehicle and renewable energy industries grew so quickly that they dominate the world. This is also reflected in the foreign trade data with exports in the first two months growing by 10.3% y/y. This is far higher than the consensus estimate of slight growth and compares favourably with other major countries that are seeing flat to slight growth in exports with the US for instance seeing a 0.4% y/y drop in exports in January, while South Africa managed a 4.5% y/y rise in the same month.

More than 120 countries, or almost two-thirds of the world, count China as their major trading partner, so a strong Chinese economy lifts other countries such as South Africa. China is South Africa’s largest trading partner. In 2022, China accounted for 9.4% of South Africa’s exports and 20.2% of South Africa’s imports, according to the South African Revenue Service (SARS). In rand terms, exports to China totalled R188.4 billion, while South Africa imported R367.4 billion, and this rose to exports of R228.6 billion and imports of R404.4 billion in 2023.

Finance minister Lan Foan said China will offer further tax cuts for technology innovation and the manufacturing sector this year, while Minister of Commerce Wang Wentao said domestic consumption, which contributed to 82.5% of China’s economic growth in 2023, will continue to be a major driver of activity this year.

The importance of domestic demand is highlighted by the 80.1% y/y surge in commercial box office revenue during the Spring Festival holiday, while spending on domestic travel jumped by 47.3% y/y as people revelled in renewing family connections after the lockdowns to combat Covid-19 in 2022.