(Yicai Global) April 18 -- China’s economy grew at a faster pace than expected in the first quarter of the year, despite widespread Covid-19 restrictions in the country and an increasing uncertain geopolitical environment abroad.

Gross domestic product expanded 4.8 percent in the three months ended March 31 from a year earlier, according to data the National Bureau of Statistics published today. That was faster than the 4.5 percent average predicted by 17 economists polled by Yicai Global and the 4 percent growth logged in the prior quarter.

Lockdowns and other Covid-19 restrictions have been imposed across China to contain a resurgence of the coronavirus in the world’s second-largest economy, whose real estate sector remains in the doldrums, while geopolitical conflicts and tensions have increased outside the country.

Despite that, China’s economy continued to recover and develop in the quarter, and moved within a reasonable range, NBS spokesperson Fu Linghui said at a press conference in Beijing. But the internal and external environments are becoming increasingly complex and uncertain, posing many difficulties and challenges to economic development, he cautioned.

The economy generally moved within a reasonable range in the first quarter,  bolstered by sound data in the first two months, according to Yang Zhiyong, deputy director of the National Academy of Economic Strategy. But it faces more challenges as uncertainties have increased since last month, he added.

Retail sales of consumer goods rose 3.3 percent to CNY10.9 trillion (USD1.7 trillion) in the quarter from a year ago, but fell 3.5 percent year on year in March to CNY3.4 trillion (USD533.8 billion).

More Policy Support

To achieve the 5.5 percent GDP growth target the government set for this year, the economy needs further policy support, according to the chief economists surveyed by Yicai Global before the GDP and other official figures were released today.

Ten of the 17 economists said that in the current economic environment the government must increase support for the economy to hit the annual growth target. Their average estimate was for a 5.2 percent increase in gross domestic product. The other seven economists said China can still achieve the 5.5 percent goal.

To support the economy by freeing up more funds for commercial banks to lend, China’s central bank announced on April 15 a widely anticipated cut to the reserve requirement ratio. The People’s Bank of China lowered the RRR, or amount of cash banks must hold in reserves, by 0.25 percentage point effective from April 25.

But the PBOC kept the rate on its medium-term lending facility loans unchanged for a third straight month, sparking speculation that the loan prime rate fixing on April 20 may also remain untouched.

Lopsided Hit

The impact of China’s Covid-19 outbreaks on consumption have been greater than that on production this year, according to a research report by China International Capital. In the first three weeks of March, catering sector revenue tumbled 44 percent, hotel occupancy rates fell 14 percentage points, and sales of housing and passenger cars slowed about 30 percentage points, the report showed.

Lockdowns and Covid-19 restrictions have also hindered freight movement. For example, the increase in annual throughput at the distribution hubs of major express delivery companies has fallen about 10 percentage points since mid-March, the report said.

Steady consumption is essential for stable growth, Wang Jun, chief economist at Zhongyuan Bank, told Yicai Global, adding that the obvious main driver of expanding consumption is the residential sector. To that end, the government should pay attention to it and consider offering consumption vouchers and cash subsidies to help people affected by the pandemic and other low-income groups, he said.

Second-Quarter Impact

The impact of Covid-19 on China’s economy will be seen in the second quarter, and the intensity of the impact will depend on nationwide restrictions, Wang pointed out. The latest wave has spread to many regions, and the lagging impact on the economy will gradually appear, he said, adding that there is an urgent need for stronger policies to stabilize growth in the second quarter.

“Optimistically, with the support of strong policies, the economic bottom may appear in the second quarter, and a noticeable rebound may turn up in the third quarter,” Wang said.

China’s development is resilient with great potential and sufficient staying power, according to Guo Liyan, director of the comprehensive situation research office of the Chinese Academy of Macroeconomic Research. It also has the ability to withstand downward pressure and risks, and the confidence to stabilize the macroeconomic market, Guo told Yicai Global.

The added value of China’s industrial companies above a designated size gained 6.5 percent in the first quarter from a year earlier, and rose 5 percent in March, the NBS data also showed. Fixed asset investment totaled CNY10.5 trillion, a 9.3 percent gain.

Editor: Peter Thomas