1Q2018 GDP grew 6.8% y/y which is slightly above our projection of 6.7%, suggesting there is adequate room for the economy to meet our full-year projection of 6.5% that falls in tandem with the official target of 6.5%. Despite a strong growth, there are some concerns on the potential outlook given the risk of trade uncertainty that can result in a tougher business environment, weaker March activity data driven by cooling investment growth, financing deleveraging and structural reforms.

Meanwhile, we feel the slowdown in both the nominal GDP growth and its GDP deflator does not mean that the debt mechanism is worsening. Efforts to address the “shadow banking” sector and directing credit back to the real economy will help overcome the rising debt pressure and mitigate risks. In our view, the structural reforms introduced to reduce leverage in a move to support GDP will help address the debt issue in the longer term.

• 1Q2018 GDP grew 6.8% y/y which is slightly above our projection of 6.7%, suggesting there is adequate room for the economy to meet our full-year projection of 6.5% that falls in tandem with the official target of 6.5%.

• Private investment continued to perform, up 8.9% y/y YTD from 8.1% y/y between January and February. Exports grew 16.3% y/y in 1Q2018 despite a fall in March by 3.6% y/y.

• But fixed asset investment climbed 7.5% y/y in 1Q2018 from 7.9% y/y 4Q2017 following slower public investments, which were up 7.1% y/y YTD versus 7.9% y/y between January and February. This could be due to the deleveraging effort that focused on state-owned enterprises and local governments.

• Despite a strong growth, there are some concerns on the potential outlook given the risk of trade uncertainty and the impact on the related industries. We believe trade is by far more than the net sum of exports and imports. It will have an impact on the supply chain, employment, investment and prices and therefore profit margins. Should trade tensions between China and US increase, we can expect a tougher business environment.

• Besides, we believe the weaker March activity data supports our view that there will be an economic slowdown ahead, driven by cooling investment growth, financing deleveraging and structural reforms, apart from the rising trade protectionism. However, there are limited signs for a full blown trade war.

• Meanwhile, we feel the slowdown in both the nominal GDP growth and its GDP deflator does not mean that the debt mechanism is worsening. Efforts to address the “shadow banking” sector and directing credit back to the real economy will help overcome the rising debt pressure and mitigate risks. In our view, the structural reforms introduced to reduce leverage in a move to support GDP will help address the debt issue in the longer term.

Source: AmInvest Research - 18 Apr 2018