Industrial production (IP) and urban fixed asset investment (FAI) started on a strong note with the first two months growing by 7.2 y/y and 7.9% y/y respectively. Also, retail sales climbed 9.7% y/y for the first two months, suggesting consumers are opening their wallets and spending more frequently while property investment gained 9.9% y/y implying developers have regained optimism on the outlook of this sector despite the cooling measures.

While we are expecting the economy to moderate in 2018 to around 6.4%, weighed down by a cooling property market and the government’s clampdown on riskier lending practices that will push up corporate borrowing costs, recent data like output, investment, property investment and trade suggested that economic growth has picked up so far in 2018 thus keeping a synchronized global recovery on track.

Risks of escalation in US-China trade tensions exist. However, we expect China to remain relatively restrained in its response. Thus, our view is that the overall economic damage will stay contained. China’s electronics and tech exports account for 43% of its total exports to the US. Our estimates showed a 10% tariff should reduce China’s GDP around 0.3 percentage point and will have a knock-on effect on other closely associated Asian countries.

• Industrial production (IP) and urban fixed asset investment (FAI) started on a strong note. IP grew 7.2 y/y in the first two months of 2018, the fastest pace of growth since June 2017. It was up from 6.2% y/y in December. The FAI in January-February advanced to 7.9% y/y, driven by an upsurge in investment growth in the primary industry (agriculture) from 11.8% y/y to 27.8% y/y. Investment in the private sector expanded by 8.1% y/y while in state-owned enterprises, investment has been slowing down from the high levels in 2016 which peaked at 23.5% y/y mid-year, to 9.2% y/y in January this year.

• Retail sales expanded at a healthy 9.7% y/y for the first two months of 2018, from 9.4% y/y in December, suggesting consumers are opening their wallets and spending more frequently. Besides, the property investment for the first two months gained 9.9% y/y from 7% y/y in December 2017, the fastest rate since 2015 despite the government’s measures to cool the property sector, implying that developers have regained optimism on the outlook of this sector.

• Although we expect the economy to moderate in 2018 to around 6.4%, weighed down by a cooling property market and the government’s clampdown on riskier lending practices that will push up corporate borrowing costs, recent data such as output, investment, property investment and trade suggested that economic growth has picked up so far in 2018, thus keeping a synchronized global recovery on track.

• We found the upbeat trade data recently indicating a stronger industrial showing, especially with exports unexpectedly surging at the fastest pace in three years in February even as trade relations with the US deteriorate. China runs a US$375bil trade surplus with the US.

• While risks of escalation in US-China trade tensions exist, we expect China to remain relatively restrained in its response. Thus, our view is that the overall economic damage will stay contained. China’s electronics and tech exports account for 43% of its total exports to the US. Our estimates showed a 10% tariff should reduce China’s GDP around 0.3 percentage point and will have a knock-on effect on other Asian countries that has closely associated in relation to the supply chains.

Source: AmInvest Research - 15 Mar 2018