Economic Insight

China’s economy maintained a steady growth pace in May onstill-solid trade, retail sales and industrial production, thoughinvestment growth slowed slightly on rising financing cost andtightening property policy.

    Combining the Apr and May data, we expect China’s GDP togrow by 6.7% in 2Q17.

    With the ongoing economic deleveraging, easing PPI inflationand property tightening measures, we maintain our China’seconomic growth forecast of 6.7% for 2017E.

    The PBOC is expected to try to keep a good balance betweendeleveraging and maintaining a relatively steady liquiditycondition. Although liquidity is likely to tight in coming months,we believe a liquidity crunch similar to the one in June 2013 isunlikely to occur as PBOC will uphold a stable and neutralmonetary policy throughout 2017.

    China’s economy maintained a steady growth pace in May onstill-solid trade, retail sales, and industrial production despite aslightly slowing investment growth.

    Fixed asset investment (FAI) growth in urban areas decelerated to7.9%1 in May from 8.3% in Apr on rising financing cost andtightening property policy (Exhibit 1). Growth in property investmentslowed to 7.4% in May from 9.8% in Apr due to strengtheninghome-purchase restrictions in some cities, while growth inmanufacturing investment rebounded to 5.6%, as compared with 3.3%in Apr. Infrastructure FAI growth dropped sharply to 15.5% from 22.9%in Apr as the government fiscal revenue growth eased to 3.7% from7.8% for the same period. Meanwhile, with return on investmentimproving, private investment growth rose to 6.6% from 5.4% in theprevious month.