China: Data Shows Fiscal Stimulus Is Working

Infrastructure investment and real estate development has supported the economy while retail sales growth has stabilized. We don't read too much into the industrial production data as factory closures due to the Chinese New Year fell in a different month this year, which distorted the figures.

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Fiscal stimulus on infrastructure investment is working

Fixed asset investment increased by 6.1% year-on-year, year-to-date in February, faster than the 5.9% rate in December.

Infrastructure investment grew 4.3%YoY YTD in February, 0.5 percentage points higher than the average rate in 2018. Road and transport investment, which is the main category of investment funded by local government special bonds, rose 13%YoY YTD, an increase of 4.8 percentage points from the average 2018 rate. 

Faster growth in these areas helped to mitigate slower growth in the manufacturing sector.

The impact of fiscal stimulus on infrastructure investment is likely to become even more obvious as the year goes on, and will be the main driver of economic growth in 2019. This will be particularly true if there is no imminent agreement on a trade deal.

Strong real estate development growth

Real estate development rose by 11.6%YoY YTD in February from 9.5% in December. Within that, residential property development grew 18.0%YoY YTD, making up 72.1% of total real estate development. This is due to the fact that some local governments have started to relax home buying measures, with lower mortgage rates, taxes, and down payments as well as fewer purchasing restrictions.

We are likely to see more local governments relax home buying policies to support growth.

Retail sales stabilized but big ticket items are weak

Retail sales growth was flat at 8.2%, with consumers more cautious about buying expensive items; jewelry grew just 4.4%YoY YTD and auto sales essentially shrank by 2.8%YoY YTD.

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