China’s activity data for January-February combined largely surprised by coming in stronger than expected, notes the research team at Nomura.

Key Quotes

“Industrial production growth jumped to 7.2% y-o-y from 6.2% in December (Consensus: 6.2%; Nomura: 5.9%), with the improvement seen across sectors. Strength came both from strong exports and resilient domestic demand, as implied by the rebound in fixed asset investment (FAI). FAI growth rose to 7.9% y-o-y ytd (Consensus and Nomura: 7.0%) from 7.2%, driven by the primary sector (where investment growth spiked by 16 percentage points (pp)) and new-economy components of the tertiary sector. Retail sales growth of 9.7% y-o-y came in just below consensus (of 9.8%; Nomura: 9.4%) but up on the 9.4% in December.”

“Despite a rebound in nominal property investment growth (to 9.9% y-o-y ytd in February from 7.0% in December), we believe the property sector continues to cool. In volume terms, growth of floor space “sold”, “new started” and “under construction” all slowed in February, while land sales growth fell into negative territory again. Another property leading indicator, “growth of funds for property development” also moderated.”

“We expect activity data to moderate in March as the cooling property sector, cautious macro policies and the fading of the financial cycle should become more evident, while exports face downward pressure from rising US protectionism. We maintain our view of real GDP growth slowing to 6.7% y-o-y in Q1 2018 from 6.8% in Q4 2017.”

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