Chinese GDP Report Card Should Be Better Than Everybody Expects

With a sizeable CNY 4 trillion fiscal stimulus and a monetary easing policy that has created 40% credit growth in 1Q19 alone, we expect the Chinese economy to grow above the 6% lower boundary target set by the government.

Fixed asset investments should jump

The 'two sessions' meetings held in early March this year set a fiscal stimulus package of CNY 4 trillion, of which around half was tax and fee cuts. The other half comes from local government infrastructure projects, including new metro lines and toll roads. Aside from the stimulus, some local governments have quietly relaxed housing regulations too. As a result, fixed asset investment should jump with fiscal money propping up infrastructure.

Investments in 1Q19 will mainly be supported by fiscal stimulus projects, including metro lines, toll roads, and water management systems. But bear in mind that these are not market-driven investments instead, they're government efforts to cushion the economy from heading south too fast. Our forecast on fixed asset investments is 6.5%YoY year-to-date in March from 6.1% a month ago.

Retail sales will show that the job market is just fine

As the government continues to spend on new metro lines and toll roads, we expect the construction sector to add job vacancies to the market, which should hopefully keep the job market stable.

The gauge of job stability, in the absence of a good unemployment indicator, will be the growth of consumption and retail sales. We forecast retail sales to increase to 8.9%YoY in March from 8.2% in January-February. If the improvement in retail sales is like we forecast, it should reflect a healthy job market.

Industrial production details should give hints about the export environment

We expect industrial production to increase to 6.2% in March from 5.7% in January to February.

The headline figure is likely to look positive because of all the infrastructure projects but we'll need to see the details to evaluate if there is an export-related sectors’ production rebound. We're not optimistic as export-related manufacturers should not be willing to expand their production line when the trade talks between China and the US are still ongoing.

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