MNI DATA ANALYSIS: China Output Sees Solid Start To Year

     BEIJING (MNI) - China industrial production recorded a strong start to

2018, belying market expectations of a slow start, but it remains to be seen

whether the momentum can be retained.

     Industrial output rose 7.2% y/y during the January-February period, higher

than the 6.2% in December last year and 6.3% during same period last year, and

beating market expectations of 6.2%, as reflected in the MNI survey.

     The strong industrial output was largely on the back of a sharp rise of

production in the electricity, heating, gas and water production sector, which

increased 13.3% y/y, affected by cold weather which buoyed the production of

electricity.

     --HOLIDAY AFFECTED

     Manufacturing sector output grew 7.0% y/y in the two-month period, up from

6.5% in December and 6.9% same period last year. This can be partly attributed

to the Spring Festival factor as production often picks up before the Lunar New

Year Holiday and industry will gradually pick up after the Holiday. 

     Fixed-asset investment increased 7.9% y/y during the Jan-Feb period in

2018, higher than 7.2% in 2017 while lower than 8.9% during same period last

year; and much higher than market expectations of 7.0%. Fixed asset investment

grew 0.61% m/m over the Jan-Feb 2018 period.

     Despite strong property investment, infrastructure investment and

manufacturing sector investment both recorded falls in overall growth.

     During the January-February period, infrastructure investments increased

16.1%, lower than 19% in 2017, and 27.3% the same period last year.

     --FUNDING CONCERNS

     Infrastructure investment is expected to suffer from heavy funding

pressures this year, as funding through local government funding vehicles, along

with other channels which could increase local government invisible debts have

been cracked down on strictly this year. 

     As infrastructure investment tends to peak at the beginning of the year

before tailing off, the deceleration in the data could hint at an overall

slowdown in infrastructure investment this year compared with 2017.

     However, the sharp decline in fiscal deposits, down CNY528.7 billion in

February, shows the government is still paying attention to infrastructure

investments, and it is unlikely that the growth will drop to far this year.

     Manufacturing sector investment growth rose 4.3% during Jan-Feb period,

lower than the recorded 4.8% in 2017 and unchanged from the same period last

year, hardly a pointer that manufacturing investment will pick up this year as a

new round of fixed investment starts to support economic growth.

     Although industrial output and fixed income investment recorded a strong

start in 2017, multiple factors -- the Lunar New Year, weather, environment

protection campaign -- have distorted the underlying picture and need a peek at

the March data for a clearer view of how the economy is performing.

--MNI Beijing Bureau; +86 10 85325998; email: he.wei@marketnews.com

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

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