Data released on Wednesday by China’s National Bureau of Statistics suggest a healthy and robust Chinese
economy during the first two months of 2018 (data for the two months is averaged to iron-out distortions in
the data due to Chinese New Year), but analysis reveals that the strong performance was unevenly distributed
across sectors. Here’s a breakdown of the figures:
Industrial output growth jumped to 7.2% year-on- year (from 6.2% in December), exceeding expectations
particularly in the face of ongoing pollution crackdowns in some regions. Analysts at ANZ highlight the
performance of state-owned enterprises (SOEs) as being central to the positive results, given that the sector
grew at its fastest rate (9% y/y) since 2012 compared with the manufacturing sector (one not as dominated by
SOEs) which slowed two percentage points to 7% y/y. Utilities, for instance, saw an acceleration to 13.3% y/y
(from 8.2%), likely to have been fuelled by higher metals and materials production, which rebounded to 3.7%
y/y (from 2.1%).
Capital Economics remain sceptical of the official industrial output data, referring to their in-house measure
instead, reading an uptick in growth to 3.3% y/y from 0.6% in December. They add that this short-term surge
is expected given the paring back of the environmental awareness campaign.
Fixed asset investment growth accelerated to 7.9% y/y (from 6.1%), also beating forecasts (Bloomberg
average: 7.0%). This was largely propped-up by faster growth in private sector investment in manufacturing
and property, rather than state-led investment in infrastructure, growth in which softened slightly to 11.3%
from 12.6% in Q4 of 2017, most likely due to a tightening of local government debt and financing according
to the deleveraging campaign.
Investment in property rebounded strongly to 9.9% y/y (from 7.0% the previous Jan-Feb). Analysts at
Standard Chartered attribute this to having been “likely boosted by developers’ instalment payments for
land purchased last year.” Real activity data, however, such as housing floor space under construction,
actually suggests a continuation of the housing market slowdown.
Property sales, similarly, fell to 4.1% y/y growth (from 6.1% in December), making the increase in property
investment growth surprising. UBS, who reference a high base and “fading uplift from shanty town renovation
subsidies in lower-tier cities” for the drop in sales growth, add that the discord “likely reflects an acceleration
of actual construction activity and investment by developers albeit without much increase in total under-
construction or new project floor space”.
While the data appears optimistic in parts, it may be prudent to reserve caution towards the headline growth
data. Mizuho Securities said that they “believe the focus on reform and deleveraging will reduce headline
growth data in the coming months, consistent with the declining trend in PMI.” UBS believe softer property
sales and cooling infrastructure investment to be significant headwinds, wishing to wait for Q1 data next
month “before concluding on China’s true underlying economic health.”