Summary: Supply side reform caused output to fall in several sectors includingcement and aluminum. Infrastructure investment slowed as well. We continueto expect GDP growth to drop to 6.6% in Q3 and 6.5% in Q4. We now see risksbalanced in H2.    Economic activities slowed in August. The slowdown came as a surprise to us andthe market. Retail sales grew by 10.1% yoy compared to 10.4% in July (consensus10.5%, DB 10.8%). Growth of industrial production declined to 6% from 6.4% inJuly (consensus 6.6%, DB 6.6%). Growth of fixed asset investment (FAI) droppedto 7.8% from 8.3% (consensus 8.2%, DB 8.1%) (Figure 1).    The weak investment growth came mostly from slower infrastructure investment,which grew at 19.8% yoy ytd in August compared to 20.9% in July (Figure 2).    Property investment growth remained stable at 7.9%. Manufacturing investmentgrowth edged down to 4.5% from 4.8%.    The weak performance of IP is to some extent driven by the supply side reform thattargeted several upstream industries (Figure 3). The growth of cement productiondropped to -3.7% yoy in August, from -0.9% in June and July. Nonferrous metal(including aluminum) and coke also experienced a visible drop in production.    The property sector continues to show diverging trends. Property sales growthslowed to 15.5% in August 3mma yoy compared to 17.8% in July in terms ofvalue (Figure 4). New housing starts grew at 5.3%, down from 10.0% in June. Yetwe noticed land auctioned remained hot, with total value rising to 41.4% from38.5% 3mma yoy (Figure 5). The positive momentum in property sector FAI islikely driven by this land market boom. We think this reflects developers optimisticexpectation for property prices in the future. But they are not in a hurry to developthe land they bought, as it will take time for property prices to rise further andmake their land purchases to be developed profitably.    We are surprised by the effectiveness of the supply side reform in August. As thispolicy continues in H2 it will likely keep growth of industrial production low anddrive up producer price inflation. We maintain our baseline GDP growth forecastat 6.6% in Q3 and 6.5% in Q4 (Q2: 6.9%). We thought the risks to our growthoutlook were tilted to the upside, but now we see the risks balanced. Nonethelesswe see no reason to panic. Leading indicators for investments actually improvedin the past few months (Figure 6). Land market continues to boom which will helpgovernment revenue in H2. If the government is concerned by slower growth,they could suspend the supply constrain on upstream sectors and increaseinfrastructure spending.    The property and land markets remains our top concern. The economy has beendoing well so far this year, to a large extent because the boom in these marketscontinued. The government has the policy room to push for supply side reform.    But the momentum in tier 3 cities may not be sustainable in the next few years.    It will be the key challenge for the new group of leaders in 2018.

声明：如本站内容不慎侵犯了您的权益，请联系邮箱：wangshiyuan@epins.cn 我们将迅速删除。