China's release of monthly and quarterly economic data and President Xi Jinping's meeting with German Chancellor Olaf Scholz in Beijing raised several key points. China's gross domestic product rose 5.3 percent in the first quarter, beating estimates. However, growth in retail sales and industrial production for March came in below expectations, pointing to a mixed outlook for the economy. A potential strong start to 2024 may already be showing signs of fading.
The real estate crisis continues to present challenges, with property prices easing in March, but property declines affecting other industries. Cement production fell 22% in March, the biggest monthly decline on record. Economists believe policymakers need to be more supportive and avoid becoming complacent. A positive GDP number could lead the authorities to believe that further policy easing is not needed.
Economic data contributed to the negative sentiment affecting Asian equities and emerging market currencies. The yuan weakened after a market correction that fell short of expectations, and Chinese stocks saw a significant drop. Small-cap stocks have been hit particularly hard due to plans for tighter regulations.
During the meeting in Beijing, Scholz discussed trade, the war in Ukraine and climate issues with Xi. The German chancellor emphasized the importance of solving excess capacity and improving the treatment of foreign companies. This meeting highlighted the complexity of economic relations between China and Germany, as China remains Germany's main trading partner.