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China’s Q1 GDP growth solid but March data shows demand still feeble

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China’s economy grew faster-than-expected in the first quarter, data showed on Tuesday, offering some relief to officials as they try to shore up growth in the face of protracted weakness in the property sector and mounting local government debt.

However, a raft of March indicators released alongside the GDP data – including property investment, retail sales and industrial output – showed that demand at home remains frail and is retarding overall momentum.

The government has unveiled a raft of fiscal and monetary policy measures in a bid to achieve what analysts have described as an ambitious 2024 GDP growth target of around 5%, noting that last year’s growth rate of 5.2% was likely flattered by a rebound from a COVID-hit 2022.

Gross domestic product (GDP) grew 5.3% in January-March from the year earlier, data released by the National Bureau of Statistics showed, comfortably above analysts’ expectations in a Reuters poll for a 4.6% increase and slightly faster than the 5.2% expansion in the previous three months.

“The strong first-quarter growth figure goes a long way in achieving China’s ‘around 5%’ target for the year,” said Harry Murphy Cruise, economist at Moody’s Analytics.

“Industrial production also supported through the quarter, but weak March data is cause for some concern. Similarly concerning, China’s households continue to keep their wallets closed.”

On a quarter-by-quarter basis, GDP grew 1.6% in the first quarter, above the forecast for growth of 1.4%.

The world’s second-largest economy has struggled to mount a strong and sustainable post-COVID bounce, burdened by a protracted property downturn, mounting local government debts and weak private-sector spending.

Fitch cut its outlook on China’s sovereign credit rating to negative last week, citing risks to public finances as Beijing channels more spending towards infrastructure and high-tech manufacturing.

The government is drawing on infrastructure work – a well-used playbook- to help lift the economy as consumers are wary of spending and businesses lack confidence to expand.

WEAK MARCH DATA

The economy was off to a solid start this year, but March data on exports, consumer inflation, producer prices and bank lending showed that momentum could falter again and reinforced calls for more stimulus to shore up growth.

Indeed, separate data on factory output and retail sales, released alongside the GDP report, underlined the persistent weakness in domestic demand.

Industrial output in March grew 4.5% from a year earlier, compared with a forecast increase of 6.0% and a gain of 7.0% for the January-February period.

Growth of retail sales, a gauge of consumption, rose 3.1% year-on-year in March, against a forecast increase of 4.6% and slowing from a 5.5% gain in the January-February period.

 

Fixed asset investment grew an annual 4.5% over the first three months of 2024, versus expectations for a 4.1% rise. It expanded 4.2% in the January-February period.

“On the face of it, the headline number looks good… but I think the momentum is actually quite weak at the end,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets in Singapore.

Prior to the data release, analysts polled by Reuters expected China’s economy to grow 4.6% in 2024, below the official target.

Following the improved first-quarter GDP outcome, economists at ANZ raised their 2024 China growth forecast to 4.9% from 4.2% previously, while BBVA maintained their 4.8% growth projection.

Most investors appeared to take the headline GDP surprise with a pinch of salt given the weakness of the March data.

Traders said China’s state-owned banks were selling dollars to steady the yuan in the onshore market. China stocks .CSI300 were tracking broader markets lower as geopolitical tensions in the Middle East sapped risk sentiment.

CHALLENGES

The crisis in the property sector has been a major drag on China’s economy as it has rippled across business and consumer confidence, investment plans, hiring decisions and stock prices.

The March data highlighted the depth of the troubles in the sector, with investor confidence and demand still at a low ebb.

China’s new home prices fell at their fastest pace in more than eight years last month as debt troubles among property developers hurt demand.

Property investment slumped 16.8% year-on-year in March, worse than a 9.0% drop in January-February, while sales tumbled 23.7%, compared with a 20.5% fall in the first two months of the year.

With the Federal Reserve and other developed economies showing no urgency to start cutting interest rates, China may also face a longer period of subpar export growth in a further blow to policymakers’ hopes of engineering a strong economic recovery.

Adding to the challenge for China, authorities also have to contend with ongoing tensions with the United States over trade, technology and geopolitics.

Investors are looking to an expected Politburo meeting in April for clues on policy direction, though few analysts expect any major stimulus.

The People’s Bank of China (PBOC) has pledged to step up policy support for the economy this year, with markets betting on further cuts in banks’ reserve requirement ratio and interest rates.

Some analysts believe the central bank faces a challenge as more credit is flowing to production than into consumption, exposing structural flaws in the economy and reducing the effectiveness of its monetary policy tools.

Looking ahead, Jinyue Dong, senior economist at BBVA research, said he believes the “recovery has not got a solid foundation yet as the deep adjustment of real estate market and local government debt overhang still remain the main risks.”

“In addition, geopolitics risks mostly due to China-US confrontations before the US president elections will persist in the foreseeable future.”

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PM Sheikh Hasina Seeks U.S. Business Support for ‘Smart Bangladesh’ Vision

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Prime Minister Sheikh Hasina today called on U.S. businessmen to support Bangladesh’s goal of becoming a developed and smart nation by 2041. Addressing a delegation from the US-Bangladesh Business Council at her official residence in Ganabhaban, she emphasized the importance of their partnership in this transformative journey.

“We aim to become a ‘Smart Nation’ by 2041. Your support in enhancing our global competitiveness and expanding our export base is crucial,” she said.

The Prime Minister highlighted Bangladesh’s imminent graduation from a “least developed” to a “developing” country in 2026, attributing this progress to sustained efforts over the last 15 years. “Our efforts have led to Bangladesh being recognized globally as a ‘Role Model of Socio-Economic Development’,” she stated, citing good governance, the rule of law, rural investment, women’s empowerment, and ICT advancements as key factors.

Sheikh Hasina noted the longstanding economic and developmental partnership with the U.S., which is Bangladesh’s largest export destination and source of foreign direct investment. She expressed optimism about further strengthening this relationship.

“To protect our economy from current pressures, investment—both domestic and foreign—is vital. The implementation of Bida’s One Stop Service (OSS) will facilitate this,” she said, addressing the OSS implementation progress review meeting at the Bangladesh Investment Development Authority’s (Bida) headquarters.

She urged the U.S. business community to invest in Bangladesh’s high-potential sectors, including renewable energy, shipbuilding, pharmaceuticals, and ICT. “We are establishing 100 Special Economic Zones (SEZs) and 28 hi-tech parks, making Bangladesh a prime destination for IT investments,” she added.

Highlighting Bangladesh’s competitive advantages, she mentioned the availability of a young, skilled workforce at competitive wages and the country’s liberal investment policy. She reassured investors of the government’s commitment to improving the investment environment.

In response to the Prime Minister’s address, Bida Executive Member Mohsina Yasmin presented a report on OSS progress, while NBR Chairman Abu Hena Md Rahmatul Muneem assured the business community of considering logical amendments to the Customs Act.

Sheikh Hasina underscored Bangladesh’s significant socio-economic achievements, including reduced poverty rates, increased life expectancy, and higher literacy rates, particularly among women. She noted that Bangladesh is currently one of the world’s fastest-growing economies, projected to be the 25th largest by 2030.

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FBCCI Calls for Customs Act Amendments and Full Automation to Ease Trade

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The Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) has called on the National Board of Revenue (NBR) to amend the Customs Act and implement full automation to streamline the customs management system. At a workshop held at the FBCCI’s Motijheel office on Sunday, President Mahbubul Alam highlighted the potential benefits of these reforms.

“These changes would simplify customs procedures, create a more business-friendly environment, and reduce the cost of doing business in Bangladesh,” Alam stated. The workshop was a joint initiative between FBCCI and NBR.

Alam underscored the importance of the Customs Act in facilitating trade and lowering business costs. “We believe the new law will significantly expedite trade activities,” he added.

The FBCCI president also addressed the complications caused by the Harmonized System (HS) code for product classification, emphasizing the need for complete automation in customs management to mitigate this issue. “A well-crafted law is only beneficial if implemented effectively,” he noted, urging the NBR to incorporate private sector feedback before finalizing the implementation process.

FBCCI Director AM Mahbub Chowdhury spoke about the harassment faced by traders at ports. He pointed out that despite paying fines for delayed duty clearance, traders still encounter obstacles during customs clearance.

Industry representatives presented their specific concerns during the workshop. Abul Hashem, president of the Sugar Traders Association, called for a tax reduction on sugar, citing it as a basic commodity rather than a luxury item. This, he argued, would help curb illegal sugar imports.

Mohammad Enayet Ullah, president of the Bangladesh Spice Traders Association, urged the NBR to adjust taxes based on international market fluctuations for spices, noting that high taxes contribute to rising spice prices in local markets.

In response, NBR Chairman Abu Hena Md Rahmatul Muneem assured the business community that logical proposals would be considered during the amendments and implementation phase of the Customs Act. He encouraged businesses to submit written complaints against customs officials rather than making random accusations.

Muneem acknowledged that while large fines are sometimes necessary to maintain trade order, they must be imposed logically and proportionally.

Md Masud Sadiq, NBR Member (Customs Policy and ICT), expressed confidence that the new Customs Act would be more trade-friendly than its predecessor and urged traders to fully cooperate in its successful implementation.

FBCCI Senior Vice President Md Amin Helali, Vice President Shomi Kaiser, directors, former directors, and NBR officials also attended the workshop.

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Global Factors, Not Mismanagement, Behind Economic Challenges: Salman F Rahman

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Salman F Rahman, the private industry and investment adviser to the Prime Minister, stated today that the challenges facing Bangladesh’s economy stem from global factors rather than domestic mismanagement.

Speaking at the One Stop Service (OSS) implementation progress review meeting at the Bangladesh Investment Development Authority’s (Bida) headquarters, Rahman highlighted the impact of international events on the country’s economic situation.

“The country’s economy is facing many challenges. These are not due to our mismanagement but are a result of the international situation,” Rahman said. He emphasized that Bangladesh efficiently managed the Covid-19 crisis, but the problems began after the outbreak of the Russia-Ukraine war.

Rahman pointed out that the Federal Reserve’s interest rate hikes led to a stronger dollar, putting pressure on Bangladesh’s reserves. “Prices of commodities, fertilizers, and fuel increased significantly, causing added stress on our economy,” he noted.

To mitigate these pressures, Rahman underscored the need for increased investment, both domestic and foreign. He stated that the successful implementation of Bida’s OSS could facilitate this investment. “We have received complaints that despite going online, people still need to visit physically and submit paper documents. These issues will be discussed today to expedite the remaining services,” he said.

During the meeting, Bida Executive Member Mohsina Yasmin presented a report on OSS implementation progress. However, journalists were asked to leave before the detailed discussion, which continued for about two and a half hours. After the meeting, Bida released a statement announcing that memorandums of understanding (MoUs) have been signed with 48 organizations, adding 101 services from 41 organizations to the OSS. Including Bida’s own 23 services, a total of 124 services are now provided through the OSS.

Mohammad Salahuddin, secretary to the Prime Minister’s Office, stressed the importance of investment in overcoming current economic challenges. “We need to remove all obstacles to increase domestic and foreign investment, and everyone must work together for this purpose,” he said.

Bida Executive Chairman Lokman Hossain Miah, who presided over the meeting, compared the investment service timelines of other countries, stating, “Vietnam provides investment-related services in 29 days and Indonesia in 48 days. We hope to add all investment services to the OSS in the next 2-3 months, enabling us to provide these services within a month.”

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