Fine China

China's strong first quarter

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What's going on?

China surprised investors on Wednesday by reporting first-quarter economic growth that was higher than expected.

What does this mean?

The Chinese economy grew 6.4% compared to the same time last year – holding steady on the previous quarter’s rate. But with annual forecasts lowered last month, analysts had expected a slowdown.

On the face of it, China’s economy outshone across the board. Industrial production and retail sales were both 9% higher than a year ago, helped by government measures including tax cuts designed to boost sales (tweet this). But cynical analysts argue that China, in the throes of trade negotiations with the US, has to paint a strong economic picture. Scratch the surface, and the government’s help hasn’t actually done that much for some parts of the Chinese economy – yet.

Why should I care?

For markets: Investors are cheering on China.

Investors bought up stocks around the world on Wednesday – the US market is currently flirting with new record highs – partly thanks to China’s economic update. As one of the world’s biggest spenders, a stronger China would benefit overseas companies throughout 2019. Indeed, cosmetics giant L’Oréal attributed its beautiful first-quarter sales growth to robust Chinese demand. And yet, although it seems unlikely, some investors are worried that China’s government may now reduce its economic support following this quarter’s success. Japan’s Nippon Paint on Wednesday agreed to buy Australia’s DuluxGroup for $3 billion, in part to diversify its business away from an unpredictable Chinese market.

The bigger picture: European vehicles are queuing up.

Data out on Wednesday showed that European car sales declined in March for the seventh month in a row – but shares of the region’s automakers rose nevertheless. Investors might be expecting a stronger-than-expected Chinese economy to drive improved car sales later this year. They’ll have to wait, however: China’s auto sales fell 11% last quarter, and its government is still mulling over the merits of a plan to reignite demand.

Originally posted as part of the Finimize daily email.

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