Strong Figures 'but Mainland Economy Faces Risks'

China's economy perked up in the first two months of 2022, with key indicators all exceeding analysts' expectations, although a surge in Omicron cases, property weakness and heightened global uncertainties are weighing on the outlook.

Industrial output rose 7.5 percent in January-February from a year earlier, the fastest pace since June 2021 and up from a 4.3 percent increase seen in December, data from National Bureau of Statistics showed on Tuesday. That compared with a 3.9 percent rise expected by analysts in a Reuters poll.

Retail sales, a gauge of consumption that has been lagging since Covid-19 hit, expanded 6.7 percent year-on-year amid rising demand during the Lunar New Year holidays and Winter Olympic Games. It also marked the quickest clip since June last year and beat expectations of a 3 percent increase in the poll.

It eked out a 1.7 percent gain in December.

Fixed-asset investment rose 12.2 percent in January-February from a year earlier, compared with the 5 percent increase tipped by a Reuters pool and 4.9 percent growth in 2021.

The figure was the highest since July last year.

The surprisingly strong performance of the world's second largest economy in the New Year may have enabled the People's Bank of China (PBOC) to hold policy rates steady on Tuesday, Iris Pang, Greater China chief economist at ING, said in a note.

The PBOC kept the rate on its one-year medium-term lending facility loans unchanged earlier in the day, dashing expectations for a cut, although investors believe policymakers may resume monetary easing soon to prop up the cooling economy.

The statistics released combined January-February economic data to help smooth out distortions caused by the Lunar New Year holiday, which fell in early February this year.

One highlight from the data was the strong growth in retail sales, which received a boost from product sales related to the Winter Olympic Games, such as skiing equipment and ice sports, Fu Linghui, spokesman for the statistics bureau, told a press conference.

"Indeed, every data point has been rebounding, mainly because policy effects kicked in early this year, with loosening in the infrastructure and property sectors. Catering spending also remained relatively strong," said Qu Qing, chief economist at Jianghai Securities.

However, analysts warn any nascent recovery, which would help China achieve an ambitious target of around 5.5 percent for 2022, could not be sustained due to surging Covid cases, a weak property market and the uncertain global recovery.

"The economic recovery momentum in January-February was good. At the same time, we should also see that the external environment is still complex and severe, and China's economic development faces many risks and challenges," said Fu from the statistics bureau.

Analysts expect the central bank to continue to ease policy to support the economy. (Reuters)