China’s economic data beat expectations in February. Headline CPI improved to +29% y/y, beating expectations of +2.5%, from January’s +1.5%. On the economic activity barometers, industrial production grew +7.2% y/y in February, exceeding expectations of +6.3% and January’s +6.2%. Urban fixed asset investments expanded +7.9% y/y in the first two months of the year, compared with consensus of +7% and previous reading of +7.2%. Retail sales rose +9.7% y/y last month. While the reading has missed consensus of +10%, it came in better than January’s growth of +9.4%. Undoubtedly, these data were distorted by Lunar New Year. As such, March’s data would be in focus.

The surge in headline inflation was mainly driven by the rally in food price. Food price inflation jumped +4.4% ,after contracting -0.5% in January, due to a +17.7% jump vegetable picce and a +22.5% jump in egg price. These offset the decline in pork price. Non-food inflation also improved to +2.5% in February from +2 a month ago, led by an increase in transportation and recreation. The underlying condition also improved with the core inflation rebounding to +2.5% from +1.9% in January. Removing the Lunar New Year effect, the combined January-February CPI data came in at +2.2%, up from +1.8% last December.

The biggest growth contributors to economic activities were industrial production and fixed asset investment. Colder-than-expected weather in February probably lifted IP growth due to higher heating demand. Meanwhile, the fact that Lunar New Year occurred in the second half of February suggests that IP growth would be better than if it had occurred in the first half. Manufacturers have a tendency to extend their holiday and shut down factories for a longer period of time than the official public holidays. Therefore, it might have some negative effects on March’s figure.

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Urban FAI growth has been in downtrend in the second half of 2017 as the government tightened the monetary policy targeting real estates. The rebound in February was a pleasant surprise. However, caution is advised as FAI is subject to a number of reporting issue. Yet, the strength last month might be attributed to the government’s shantytown redevelopment project.


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