China's economy gathers pace as output, investment accelerate

Beijing - China’s economy started the year on a firm footing as its old growth engines gathered pace, with steel and aluminium rebounding as prices rallied and home sales remaining resilient.

Key points

Industrial production climbed 6.3% from year earlier in January and February combined, versus median estimate of 6.2% in Bloomberg economist survey.

Retail sales advanced 9.5% in the first two months, missing economists’ forecasts as auto sales dropped after a tax increase on small-engine cars Fixed-asset investment increased 8.9% during the same period.

Big picture

The reports show investment, property and industrial drivers helping to boost growth across the economy as top leaders conclude their legislative gathering and look ahead toward a twice-a-decade leadership shift in the fourth quarter.

Steadier expansion, which lifted the Bloomberg Intelligence China monthly growth tracker to 6.99% in February, gives the People’s Bank of China more maneuvering room as it boosts money-market rates to contain corporate leverage.

Premier Li Keqiang announced at the opening of the National People’s Congress this month an expansion target of 6.5% or higher for the full-year and cut the M2 money supply goal to 12% from 13% in 2016.

He will elaborate on the government’s objectives Wednesday at a press conference as the annual legislative gathering closes.

Economist takeaways

"Following the solid data for the start of the year and the signaling of a slightly more dovish policy stance during the recent NPC compared to what we had expected, we now expect GDP growth to slow to 6.5% this year, up from 6.3% before," Louis Kuijs, head of Asia economics at Oxford Economics in Hong Kong, wrote in a report.

"High uncertainty calls for vigilance of policy making. But at least the current growth momentum gives policy some two-way leeway."

"The data pointed to a good start to the year. Fixed asset investment got a boost largely because of infrastructure projects. It shows that the proactive fiscal policy is playing out well," said Tommy Xie, an economist at OCBC Bank in Singapore.

"Infrastructure will be generally strong this year thanks to public-private partnerships.

Credit data in February also showed that investment is getting adequate financial support."

"China’s economy is opening the year with a good start, although pro-growth policies to shore up consumption in coming months are needed," said Gao Yuwei, a researcher at the Bank of China’s Institute of International Finance in Beijing.

"Auto sales have slowed to weigh on consumption after two years of splurging."

"The latest data support the slight tightening bias in People’s Bank of China policy," Bloomberg Intelligence economists Tom Orlik and Fielding Chen wrote in a report.

"Strength in real estate sales and construction - if sustained - would mean upside risks to Bloomberg Intelligence Economics’ 6.3% growth forecast for the year."

The details

In a sign that the economy’s momentum is building, private fixed-asset investment accelerated to 6.7% growth from a year earlier in the first two months of 2017.

Property development investment increased 8.9% in the period.

The value of new homes sold rose 23% to 912bn yuan ($132bn).

A reading of services output increased 8.2% in January and February automobile sales fell 1% from a year earlier, a breakdown of the retail sales numbers shows slower retail sales were due to the high base effect from car sales last year, an NBS spokesperson said at a briefing in Beijing employment was stable in January and February and economic improvement continued with better fundamentals during the period, the spokesperson said.