China’s economic performance in the first quarter of 2024 surpassed expectations, with GDP growth reaching 5.3%. This positive momentum puts the country on track to achieve its annual target of around 5% growth, despite ongoing headwinds.

Economists polled by Wind had previously predicted a more modest increase of 4.9%. This stronger-than-anticipated performance underscores a pick-up in economic activity. Notably, growth accelerated compared to the previous quarter, rising from 1.2% to 1.6%.

The growth story is fueled by a robust services sector and a resurgence in exports driven by overseas demand. However, potential trade friction with the West, including the possibility of additional tariffs, poses a significant challenge. The US recently placed blame on China for issues of industrial overcapacity, further complicating the trade environment.

While retail sales exhibited year-on-year growth of 3.1% in March, this figure falls short of the 5.5% achieved in the combined figures for January and February. This suggests a potential slowdown in domestic consumption, an area where Beijing has pinned its hopes for propelling the economic recovery. Month-on-month figures also show a modest increase of only 0.26% in March compared to February.

Industrial output followed a similar pattern. Year-on-year growth reached 4.5% in March, falling below the anticipated 5.3%. Additionally, there was a slight decline of 0.08% compared to February, likely due to disruptions caused by the Lunar New Year holiday.

Fixed-asset investment offered a brighter spot, expanding by 4.5% in the first quarter compared to the previous year. This represents an improvement over the 4.2% increase observed in the first two months. However, property investment remains a drag on GDP growth. The first quarter witnessed a 9.5% year-on-year decline, though this is a slight improvement compared to the 9% fall in the first two months. Private investment, a key indicator of business confidence, offered a more optimistic sign, growing by 0.5% during the first three months.

The urban unemployment rate remained stable at 5.2% in March, compared to 5.3% in the combined figures for January and February.

Beijing’s ambitious goal of achieving around 5% annual growth has been met with skepticism due to the high base point established last year and the ongoing slump in the property market. Standard Chartered Bank’s Ding Shuang anticipates that China’s economy will ultimately reach 4.8% growth in 2024 due to potential challenges emerging in the second half of the year.