Construction activity continued ramp up in April, but we are concerned about the sustainability of growth

• A rebound in real estate investment in early 2016 has supported a surge in construction activity. In the first four months of 2016, residential construction starts rose by 18% yoy –with an acceleration in growth across March and April – underpinning growth in China’s industry sector – particularly demand for steel and cement.

• We have serious concerns around the sustainability of the current rebound in Chinese construction activity. The recovery in house prices is largely related to policy changes that have relaxed purchase requirements, looser credit and the poor performance of alternative investment options – to re-inflating the property bubble that had somewhat deflated across 2014 and 2015. In the absence of a broad based fundamental support for current real estate trends, any policy changes that prove adverse to construction could result in a sharp slowdown in industrial activity.

• China’s industrial production growth was somewhat weaker in April – at 6.0% yoy(down from 6.8% in March) – below market expectations.

• Growth in China’s fixed asset investment was slightly slower in April – at 10.1% yoy(from 11.1% in March). Although fixed asset investment has trended lower since late2013, it has recovered modestly in recent months from lows recorded in September2015. The recovery in real estate investment has been a major contributor to this trend.

• A month-on-month rise in exports and a fall in imports in April led to a widening in China’s trade surplus, to US$45.6 billion (from US$29.9 billion in March).

• China’s new credit expansion was relatively modest in April – compared with the surge in the first quarter – with new aggregate financing of RMB 751 billion – down around29% yoy. That said over the first four months of the year, aggregate financing expanded by over 28% yoy to RMB 7.3 trillion – driven by large increases in January and March.

For further details, please see the attached document:

• China’s economy at a glance – May (PDF, 255kb)