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China grows and slows

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China grows and slowsBy Arnaud Masset

The People’s Republic racked up its third consecutive quarter of 6.8% annualised growth in Q1, right in line with expectations, but we expect that expansion to slow down. 2018 will be more challenging than 2017. First, deleveraging will continue. Second, the real estate market, historically one of the biggest growth drivers, will continue to ease up. Finally, normalisation – the shift to domestic-generated from export-driven growth – will soften the gains. At the same time, China will work hard to feather the impacts. All in all, we remain confident that China will remain the main driver or global growth.

Industrial production came in slightly soft in March, printing at 6.0% annually versus 6.3% expected, while retail sales beat expectations, rising 10.1% year-on-year versus a 9.7% median forecast. Only a year ago industrial production was growing at 7.6% while retail sales rose 10.9%. Fixed asset investment rose 7.5% in Q1, 40 basis points lower than expected. State fixed assets investment fell to 7.1% annually in March, down from 9.1% in February and 10.1% in January, while private investment has been surging continuously since mid-2016, which confirms that the government is working actively at normalising.

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