MNI ANALYSIS: China's Strong Q1 GDP Growth Buoyed By Property

     BEIJING (MNI) - China's solid gross domestic product growth in the first

quarter was buoyed by the strong property market, despite tight government

controls on the sector to curb a speculative bubble.

     Fixed asset investment was lower than expected, while industrial output

matched the median forecast from economists surveyed by MNI, leaving China's GDP

higher by 6.8% year-over-year in the first three months, the same as the fourth

quarter of 2017, according to official data released Tuesday.

     --PROPERTY INVESTMENT

     Faster investment growth in the Chinese property sector, on the other hand,

helped boost GDP growth. Property investment in March grew 10.4%, 0.5 percentage

points higher than in the first two months, helped by a 13.3% growth of

residential property investment. In the first quarter, property investment

accelerated to the highest since December 2014, when it was 10.5%.

     The growth in property investment came from strong demand for property from

buyers sensing increased investor interest in the near future. The acceleration

came despite demand being suppressed by government regulation. Since late 2016,

China's government has issued policies, including housing purchase quotas,

guiding banks to increase mortgage rates and raising minimum down payment

requirements to curb an overheating of the property market.

     The speeding up of inventory increase contributed to stronger property

investment, partly due to local governments pushing developers to finish

projects in order to clamp down on developer delays of sales in the hope of

higher prices.

     Development in Tier-3 and Tier-4 cities are edging up as developers look to

diversify their portfolio, Yan Yuejin, director of the research department of

E-house Real Estate Research Institute said in a note. He said the rising cost

of construction and decoration also led to a higher property investment reading.

--STRONG MOMENTUM

     Strong momentum for property investment can also be shown from rebound of

land sales, amid a time when land price is still increasing. Land sales was up

0.5% in the first quarter because of faster land supplies in cities with low

inventories after success of the government-led housing inventory cut campaign.

It's a jump from a 1.2% drop, which was distorted by the Chinese New Year effect

landed in February, in the first two months. Price of land sales was up 20.3%

y/y, 20.3 percentage points higher than the first two months when the growth was

flat.

     Rebound was also seen in housing starts, an index indicating property

developers' confidence on the sector which would be reflected in next month's

investment data. It accelerated 9.7% y/y from the 2.9% in the January-February

period to 17,746 square meters.

--UPBEAT OUTLOOK

     Property transactions, under the strict purchase restrictions implemented

by the central government, increased 3.6%, 0.5 percentage point down from the

first two months of the year. Though the growth rate is expected by analysts to

further slow in the coming months if the Chinese government does not ease

property controls, suppressed demand could continue to support future sales as

Chinese families increasingly seek to switch to bigger houses and the investment

needs in the sector remains fundamentally unchanged.

--RETAIL SALES

     Alongside property sales, retail sales also came in strongly in Q1

contributing to the strong GDP growth, boosted by solid growth in

property-related merchandise sales. On an annual basis, home appliances grew

15.4%, furniture was up 10.9%, while construction and decoration material rose

10.2%.

--MNI Beijing Bureau; +86 (10) 8532-5998; email: iris.ouyang@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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