Macroscope | China’s bumpy recovery is still preferable to the chaos of a US recession and default

Is a stronger-than-expected rebound in China’s economy sufficiently appreciated in financial markets? Official figures released on Tuesday showed faster-than-anticipated growth in the first quarter of this year. China’s economy expanded 4.5 per cent year on year, compared with a forecast of 4 per cent, yet this was met with indifference in stock markets.

The CSI 300 index of Shanghai and Shenzen-listed shares rose a meagre 0.3 per cent while the Hang Seng Index fell 0.6 per cent. To be sure, Chinese stocks experienced a rapid rise between November and January and are up 6.5 per cent this year.

Even so, sentiment over the past few months has been volatile. This is indicative of a market that is sceptical about the strength and durability of China’s post-pandemic recovery.

The scepticism stems partly from concerns over the unevenness of China’s rebound. The 10.6 per cent surge in retail sales last month – the sharpest monthly gain since June 2021 and the driving force behind the rebound – received almost as much attention as the weaker-than-expected rise in fixed-asset investment and outright contraction in property investment in the quarter as a whole.

In a report published on Tuesday, Nomura said it saw “weakness and inconsistency” in the data, in part because of the low base effect of last year’s ruinous lockdowns in Shanghai and other cities, as well as the continued rise in youth unemployment.

Other economists have pointed to muted inflationary pressures in China, the negligible impact of the reopening in commodity markets – in stark contrast to previous Chinese recovery cycles – and the absence of cash handouts for households.