Construction activity has continued to support China’s growth in May, but sustainability concerns remain

• China’s construction sector continues to drive activity in China’s economy – flowing through to heavy industries such as steel and cement. New construction starts rose by 16% yoy over the first five months of the year – with lower growth in May than March and April – however this slower growth was largely due to base effects.

• As we noted last month, we don’t believe that the construction rebound is sustainable, with the recovery in house prices largely driven by policy relaxation, loose credit and the poor performance of alternative investment options for individuals – re-inflating the property bubble that had previously deflated to a degree across 2014 and 2015.

• Industrial production growth was unchanged in May at 6.0% yoy – in line with market expectations.

• Fixed asset investment was softer in May, with trends mixed at a sub-sector level – with an acceleration in real estate investment, while investment in manufacturing continued to trend lower.

• China’s trade surplus widened in May to US$50.0 billion (from US$45.6 billion previously) due to a month-on-month increase in exports. Price effects continue to influence trade values – with commodity imports increasing strongly in May – particularly construction related iron ore and copper.

For further details, please see the attached document:

• China’s economy at a glance –  13 June 2016 (PDF, 289kb)