China’s National Bureau of Statistics (NBS) released a strong first quarter (Q1) GDP reading, and we revised up our full year forecast to 5.5% from 5.3% previously. While most of the major offshore sell side houses upgraded their GDP forecast to approximately 6% or greater, the majority of onshore (China’s domestic market) sell side houses kept their forecasts within 5-5.6%. At the same time, rather than seeing a sell off, it is interesting to note that the onshore CGB (Chinese Government Bond) market has been roughly muted to strong economic headline readings and the CGB yields even moved slightly lower. In this note, we highlight the potential reasons why the onshore market holds a more cautious view than the offshore market.

Strong March retail sales lack overall improvement. Though March monthly retail sales recorded strong growth of 10.6%, this growth was primarily supported by catering (due to COVID policy change) and luxury/discretionary goods (such as jewelry, cosmetics, clothes), while housing related sales (such as furniture, decor, electrical appliances) and necessities sales (such as food and drinks) remain subdued. The structure of March retail sales data suggests the rebound is more likely to be driven by pent-up demand rather than a broad-based improvement supported by an increase in household income.

Concerns on persistent consumption recovery.

• Mixed employment numbers. The nationwide unemployment rate dropped to 5.3% in March, mainly supported by migrant workers (due to a strong rebound in construction and services sectors). But, on the other hand, the youth unemployment rate went even higher to 19.6% (the second highest reading since data availability), and sectors (such as tech, private tutoring) that absorb such job seekers are still doing cost reduction to weather the trough despite the loosening of regulatory guidance. College graduates, who used to be in the high income group rather than migrant workers tend to contribute more to overall household income improvement and hence consumption.
• Household savings remain elevated. Along with subdued youth employment, average household income growth improved only slightly to 2.7% in Q1 2023 from 1.9% in Q4 last year; this is still way below the pre-COVID 5-year average of 6%. Meanwhile, according to the People’s Bank of China (PBoC) Q1 quarterly survey, while household saving tendency decreased slightly by 3.8 percentage points(pp) compared to Q4 last year, consumption tendency only increased by 0.5pp, suggesting a very slow excess savings release. With that said, we are waiting for more evidence for a broad-based and sustainable consumption recovery.

Housing market uncertainty lingers. New residential projects and under-construction residential projects are back to deep a contraction in March, while floor space completed continued to surge. This suggests that real estate developers are prioritizing funds on unfinished projects, as required by authorities, but lack the funds for new projects. Meanwhile, according to the China Index Academy, land sales (in terms of area), in 300 representative Chinese cities, contracted by 14% yoy in Q1 despite some improvement in land sales in tier-1 cities. Entering April, among 30 representative cities in China, new home sales moderated and raised concerns on the persistence of housing market recovery even though there was a strong yoy increase in new home sales.

Source: WIND, JPMAM estimates, as of March 2023