China’s economic activities ended last year with a strong tone. GDP growth expanded +6.8% y/y in 4Q17, beating consensus of +6.7%.Serctor-wise, growth in the services sector accelerated to +8.3%, from +8% in the third quarter. By contrast, growth in the manufacturing sector slowed to +5.7% y/y from 6% the third quarter. From a quarter ago, the economy expanded +1.6%, down from an upwardly revised +1.8% in the third quarter. For 2017 as a whole, China’s economy expanded +6.9%, up from 6.7% in 2016 and more than meeting the government’s target of “around +6.5%”.

Look at the December activity data, IP growth expanded +6.2% y/y in December, beating consensus of, and November’s, +6.1%. Concerning individual industries, steel products, ferrous metal, and electricity production improved from the same period last year, but crude oil manufacturing and automobile manufacturing growth decelerated. Urban fixed asset investment grew +7.2% y/y for the full year in 2017, exceeding expectations of a +7.1% increase. Note, however, that this is the first December since 1996 that urban FAI did not expand from the prior year, thanks to the government tightening policies specified to curb the property market. A good point to note in the FAI data is that manufacturing FAI growth soared to +10.2% y/y, the fastest since May 2015, possibly signaling a robust outlook in the broad economy.

Retail sales grew +9.4% y/y, slowing from consensus of, and November’s, +10.2%. While the strong reading in November was mainly driven by the one-off factor of the double 11 festival, the weakness in the combined reading of November and December might offer a warning signal.

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Overall, China economy remained upbeat last year, despite the government’s targeted tightening policies. We expect the PBOC to maintain a prudent and neutral monetary policy this year as anti-corruption, delveraging and debt reduction remain the keys objectives of the government.


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