China’s First Quarter Results Show Growth Propelled by Its Factories

The Chinese economy grew strongly in the first three months of the year, new data shows, as China built more factories and exported huge amounts of goods to counter a severe real estate crisis and sluggish spending at home.

To stimulate growth, China, the world’s second-largest economy, turned to a familiar tactic: investing heavily in its manufacturing sector, including a binge of new factories that have helped to propel the sale around the world of solar panels, electric cars and other products.

But China’s bet on exports has worried many foreign countries and companies, which fear that rising shipments of Chinese goods that are flooding economies elsewhere may undermine their own manufacturing industries and lead to layoffs.

On Tuesday, China’s National Bureau of Statistics said the economy grew 1.6 percent in the first quarter over the previous three months. When projected out for the entire year, the first-quarter data indicates that China’s economy was growing at an annual rate of about 6.6 percent.

China needs robust growth to bring down persistently high youth unemployment and to help companies and households cope with very high levels of debt.

For the year, China has set a growth target of about 5 percent, a goal that many economists had viewed as ambitious, although some have recently upgraded their forecasts. Last year, China’s economy grew 5.2 percent.

Output was 5.3 percent higher in the first three months of this year than during the same period last year, the statistics bureau announced on Tuesday. That exceeded economists’ forecasts of an increase of 4.6 to 4.8 percent.

Strong exports early this year helped to lift China’s economy. The value of exports rose 7 percent in dollar terms in January and February from a year earlier, and 10 percent when measured in China’s currency, the renminbi. But the actual contribution from exports to the country’s economy was considerably greater, as falling prices obscured the full extent of China’s export gains.

Guo Tingting, a vice minister of commerce, said at a news conference last month that the physical volume of exports had climbed 20 percent in January and February over last year. Exports faltered somewhat in March, however.

Retail sales have also increased this year, but at a moderate pace of 4.7 percent compared with the first three months of last year. With street festivals and other activities, the government has encouraged families to spend more even as many in China have stepped up their savings to offset a recent nosedive in the value of their apartments.

Domestic tourism spending and box office ticket sales both rose during Lunar New Year in February, easily exceeding levels before the Covid-19 pandemic. Smartphone sales have also climbed — although not for Apple — as Chinese buyers increasingly choose local brands.

Broadly falling prices, a phenomenon that can become entrenched in deflation, continue to be a problem, particularly for exports and at the wholesale level. Chinese companies have been vying to cut export prices and win a bigger share of global markets, even when this means incurring heavy losses.

During top-level meetings earlier this month with Chinese officials, Treasury Secretary Janet L. Yellen warned that flooding markets with exports would disrupt supply chains and threaten industries and jobs. Chancellor Olaf Scholz of Germany expressed similar concerns while on a visit to China, though he also cautioned against protectionism in Europe.

China is ramping up manufacturing and exports to offset a deep slump in housing construction and apartment prices. The construction of housing — and the production of steel, glass and other materials for the housing — was the biggest driver of growth in China for many years. But sales of new apartments have fallen fairly steadily since the start of 2022. Few construction projects are now being started, as dozens of insolvent or nearly insolvent developers struggle to finish dwellings they have previously promised to buyers.

Chinese officials blame weaknesses in the Chinese economy partly on high overseas interest rates engineered by the Federal Reserve to combat inflation in the United States. Those rates have made it more attractive for Chinese families and companies to move money out of China, where interest rates are low, to foreign countries where rates are higher.

“The negative impact of the high interest rate environment on the economy is continuing,” said Liu Haoling, the president of the China Investment Corporation, which is China’s sovereign wealth fund. He spoke in late March at the China Development Forum, a meeting in Beijing of policymakers and executives.

China’s manufacturing juggernaut, underpinned by years of policy directives and financial support from Beijing to local governments and companies, has made the country’s goods among the world’s cheapest. The U.S. government disclosed last week that average prices for imports from China were down 2.6 percent in March from a year earlier.

China has required companies to invest more in research and development, in the hope that a wave of innovation will spur economic development.

The country is also requiring factories to pursue greater automation. “By 2025, we will have realized a new type of industrialization,” Jin Zhuanglong, the minister of industry and information technology, said at the China Development Forum, noting that China already produces more than 30 percent of the world’s manufactured goods.

China’s state-controlled banking system has been channeling more money to industrial firms, helping them to pay for extensive construction of new factories. Investment in manufacturing projects jumped 9.4 percent in the first two months of this year from a year earlier.

But many households are cutting back on spending. “Chinese companies, across a wide range of sectors, now produce far more than domestic consumption can absorb,” the Rhodium Group, a consulting firm, said in a report in late March.

People’s wariness about spending is something Li Zhenya sees daily. He manages Izakaya Jiuben, a Japanese restaurant in the Beijing neighborhood of Wangjing, once home to some of China’s biggest tech companies.

A few years ago, workers lined up outside the restaurant, pouring out of nearby offices to spend their hard-earned money in short breaks between long shifts. These days, many of the restaurant’s seats are empty at lunch and dinner.

“People’s desire to consume is not that high now,” Mr. Li at Jiuben said. The restaurant, he said, pulls in about $2,156 a day in revenue, about half its sales just a few years ago.

“I’m losing money running the restaurant,” he said.

Jiuben is on the fourth floor of Pano City Mall, where restaurants advertising Korean, Japanese and Chinese food operate next to empty storefronts. Some places look abandoned: The lights are off but a pile of takeaway boxes sits by the till, lamps still hanging or chairs and tables intact.

Centered around three curved, pebble-like buildings designed by Zaha Hadid, the neighborhood of Wangjing was once a hub of activity for the capital’s busiest workers. Restaurants and shops benefited from the presence of companies like Alibaba, JD.com and Meituan.

“The lights used to be on when nighttime fell, but now at least half of the lights are off,” Mr. Li said.

A government crackdown starting in 2020 pushed companies to cull jobs. Others left Wangjing. Covid-19 restrictions that froze the neighborhood for weeks at a time made it hard for small businesses in Wangjing to recover.

“The epidemic led to a cautiousness in consumption,” said Kou Yueyuan, the owner of Smoon Bakery, down the street from Pano City. “Customers are obviously quite price-sensitive,” Ms. Kou said.

Ms. Kou started her business more than eight years ago, selling baked goods like bitter melon bagels and ube mochi twists. Now she places less emphasis on developing new baked goods with different flavors. Instead, she focuses on keeping costs low so that the bakery can offer cheaper prices.

Li You contributed research.