BEIJING (Reuters) – China's economy grew at a slightly faster-than-expected pace of 6.8 percent in the first quarter, driven by strong consumer demand and strong real estate investment.
Resilience in the second largest economy in the world probably it will keep a synchronized global recovery on track for a while longer, even as China faces growing tensions with the United States that could affect billions of dollars in trade.
But economists still expect China to lose momentum in the coming quarters as Beijing forces local governments to reduce infrastructure projects to contain their debt, and property sales are further cooled by strict government controls about purchases to combat speculation.
Consumption, which accounted for almost 80 percent of economic growth in the first quarter, played an important role in supporting the economy, even when the risks grew for Chinese exporters.
March retail sales increased 10.1 percent from the previous year, slightly more than expected and the strongest pace in four months, with consumers buying more than just about everything from cosmetics to furniture and appliances.
"Retail sales data tells you a lot about consumption, it's not seasonal: if you look at the growth in cosmetics, clothes spending, car spending, there has been a persistent trend for a few months," Iris said. Pang, China economist at ING in Hong Kong.
"Consumption is really strong, there is strong wage growth in urban areas, we underestimate the power of consumption in China."
China's export sector also posted strong growth in the first quarter, with shipments to the US UU Increasing 14.8 percent year on year. Some analysts have speculated about the possibility that Chinese companies have sent their deliveries to the US. UU As the tariff threats loomed.
However, net exports in general were a drag on GDP growth in the quarter after giving an additional boost to the economy last year, highlighting the need for a sustained strength in domestic demand if new taxes are imposed significant fees.
"We do not expect (tensions between the US and China) will evolve into a large-scale trade war, but we also argue that this uncertainty will not disappear and we expect a bumpy road of negotiations." In terms of the impact of potential tariffs It is quite limited, particularly this year, "said Haibin Zhu, chief China economist at JP Morgan in Hong Kong.
"Even in the worst situation in which both countries begin to implement tariffs of $ 50 billion, we are talking about a few tenths of a percentage point and it is likely that it will only begin to affect the economy at the end of this year and in 2019. "
GROWS ON FINANCIAL RISKS, POLLUTION TO CONTINUE
Analysts polled by Reuters expected the January-March GDP to grow 6.7 percent from the previous year, decelerating marginally from the rate at the end of 2017.  China's GDP now grew by 6.8 percent for three consecutive quarters, a remarkably stable pace for such a large and dynamic economy and reinforcing concerns about the reliability of official data.
On a seasonally adjusted quarterly basis, GDP grew 1.4 percent, slightly less than expected and decreased from 1.6 percent in October-December, again suggesting that the economy may be losing some strength.
Still, growth remained comfortably above the government target of around 6.5 percent for the full year, giving policymakers room to further reduce risks in China's financial system and control the pollution without stalling economic growth.
The authorities have repeatedly committed to reducing a mountain of corporate debt in the name of national security, although they have moved cautiously to avoid the delay in commercial activity.
Beijing has also remained faithful to its campaign for shuttering highly polluting factories, as it seeks to encourage more sustainable and higher quality growth from "new economy" sectors such as technology.
Chimney industries have been a key focus of that pivot in industrial policy, although it weighs on China's overall manufacturing prospects.
Industrial production expanded 6.0 percent in March in the year, the slowest pace in seven months. Analysts had predicted that production growth would cool to 6.2 percent from 7.2 percent in the first two months of the year.
"Below the steady growth of GDP there is a fairly rapid rebalancing between industrial sectors, investment sectors and old sectors of consumption, services and new economy such as technology," said Robert Subbaraman, chief economist for Asia, excluding Japan. in Nomura in Singapore.
"The more punctual March data, however, point to incipient signs of a slowdown in growth underway, led by these old sectors of the economy."
SLOW REAL ESTATE
First-trimester readings on China's real estate sector, a key economic driver, mixed but also seemed to reflect the growing influence of changing government policies.
Real estate investment accelerated to 10.4 percent in the quarter, the fastest pace in three years, compared with an increase of 9.9 percent in the first two months of this year.
Analysts say that a significant increase in land prices, as well as a government push to build more public housing, could have contributed to the unexpected strength in the main figure and a start in construction.
Property sales, however, continued to decelerate amid a flurry of government measures to bring home's high prices under control and higher mortgage rates. Sales by floor area increased by 3.6 percent in the quarter, decreasing since the beginning of the year.
Investment in fixed assets has also faltered, as Beijing urges local governments to refrain from rampant loans to finance glamorous projects to exceed economic growth targets.
The growth of investment in fixed assets between January and March fell to 7.5 percent, below expectations and 7.9 percent in January-February.
Investment in infrastructure increased 13 percent year on year, decreasing slightly from January to February.
In a surprise change, private investment – which accounts for around 60 percent of total investment in China – grew faster than investment by state-owned enterprises for the first time in more than two years.
Investment in fixed assets of the private sector increased 8.9 percent in January-March, accelerating from an increase of 8.1 percent in the first two months.
"The rally in private investment this year is mainly due to the improvement in corporate profits last year and the support of government policy," said David Qu, economist at the beginning of the year. of ANZ in Shanghai.
Despite a more optimistic first quarter than expected, analysts still predict that China's economic growth will fall to 6.5 percent this year, with ongoing regulatory crackdowns and the US trade dispute. UU As key risks, it showed a Reuters poll. [ECILT/CN]
Reporting by Elias Glenn; Additional reports by Yawen Chen and Stella Qiu in Beijing and Marius Zaharia in HONG KONG; Written by Ryan Woo; Edition of Kim Coghill