China: a good start to the year

CHART OF THE WEEK

On March 14th, China’s National Bureau of Statistics released combined economic data for January and February, to reduce distortion caused by the Chinese New Year. Industrial output increased at 6.3% year-on-year, versus a 6.0% rise in 2016. The figure is slightly ahead of market expectations. Investment also surprised to the upside, at 8.9% year-on-year following 8.1% in 2016, driven by the real estate sector and infrastructure spending. The main disappointment was consumer spending. After a 9.7% rise in 2016, retail sales rose just 8.1% year-on-year.

OUR ANALYSIS

Along with the message from the PMI surveys, these start-of-the-year statistics paint a relatively healthy economic picture for China, as expanding investment partially offsets slowing consumption. Policies aimed at cooling the real estate market have not yet translated into any real slowdown in the sector with both house sales and housing starts holding up well.

The slowdown in consumer spending is primarily due to falling car sales (-1.0% year-on-year versus +10% in 2016). Sales were most likely hit by the small car purchase tax rising from 5% to 7.5% in January 2017. This tax had been halved at the end of 2015 from 10% to 5%, which spurred a sharp rise in 2016 sales figures. Excluding car sales, the National Bureau of Statistics showed retail sales remaining relatively stable. Overall, the data indicate a good start for China’s government, which has announced a 2017 growth target of around 6.5%.

The opinion expressed above is dated March 20th, 2017 and is liable to change.

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Julien-Pierre Nouen

Directeur des études économiques et de la gestion diversifiée