China's 2018 Q1 Numbers Show More Sustainable Growth



China’s statistical authorities have just announced that economic growth in the first quarter of this year came in at 6.8 percent, slightly ahead of expectations. Looking beyond the headline number, several points are worth noting. All support the view that China continues to make progress in rebalancing sources of economic growth, putting its expansion on a more sustainable path than was the case a few years ago.

First, imports grew much more rapidly than exports in the first quarter of 2018, in contrast with last year when net exports were a positive contributor to China’s growth. As a result, China's trade surplus fell by about a fifth compared to the first quarter of 2017, dragging growth down by about a half a percentage point. In short, domestic demand growth was far more robust than the headline figure suggests.

Second, the key source of this growth of domestic demand was consumption, which contributed to more than three-quarters of GDP expansion. This reflects continued progress in moving away from investment led growth.

Third, the growth of household disposable income continued to run ahead of GDP growth, boding well for continued strong consumption growth. This is largely because the wage share of GDP continues to go up, a sharp contrast with countries in the Organization for Economic Cooperation and Development (OECD) where on average the wage share has been flat for several years.

Fourth, services growth continued to outperform GDP growth, accounting for about three-fifths of the expansion of GDP, well ahead of the contribution from industry and construction.

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