Despite a contraction in the real estate sector, China’s economy was up an encouraging 5.2% in the second quarter of 2023. This historic move was announced by the National Bureau of Statistics. This growth beat out market expectations, a sign that the nation’s economic recovery is still on steady footing amid rising headwinds. In comparison, China recorded an impressive 5.4% expansion in its gross domestic product (GDP) in the first quarter of the year.
Despite the good GDP numbers, the urban unemployment rate remained at 5% in June. This is a small drop from a two-year high of 5.4% that was hit in February. And with unemployment rates steady, that leaves the impression of a strong labor market. Despite the pace of job creation cooling, we can see obvious signs of strength.
China’s trade picture continues to present both threats and opportunities. In the first half of this year, exports to the U.S. accounted for 11.9% of all Chinese exports. This represents a drop from 14.1% over the same time last year. Specifically, the U.S.-bound shipments have really taken it on the chin, contracting 10.9% through June. Exports to Southeast Asian nations were up 13%. At the same time, as we noted last month, exports to EU countries have grown 6.6% this year—a sign of changing trade patterns.
And there was other retail news that indicated retail sales growth is starting to slow. It fell to 4.8% in June, a decline from a healthier 6.4% in May. This deceleration puts domestic consumption under the spotlight as the U.S. economy adapts to a rapidly changing environment. On a more encouraging note, IP jumped 6.8% YoY. This growth is a sign of the persistent power in our manufacturing making sectors.
Investment trends showcase a mixed scenario. Annual fixed asset investment grew by 2.8% during that first half of the year. This increase shows a measured but positive trend towards capital expenditures even amid an uncertain economic climate. Meanwhile, the Chinese government has moved decisively to shore up the economy. They have introduced bike lane migrations and built speed bumps to head off the collateral damage from Trump and Xi’s tariff tussle and trade war.
Experts warn that despite the positive macroeconomic performance, a number of vulnerabilities still loom under the surface. Huang Yiping and two other economists highlighted this fragility in their recent report, stating that “deeper indicators such as soft consumer price index, weak purchasing managers’ index readings, cautious credit dynamics and elevated migrant worker unemployment point to underlying fragility.”