Headline industrial production (IP) growth jumped to 7.2% in January ~ February from 6.2% YoY in December, notably higher than our forecast and the market consensus. On a sequential, seasonally adjusted basis, January ~ February IP growth picked up to 0.57% MoM from 0.52% MoM in December (non-annualized). The higher IP growth was partially due to the favorable working day effect, but also boosted by the stronger growth of “new economy” industries. Electricity production growth accelerated visibly to 11% YoY in January ~ February from 6.0% YoY in December. Production of new energy car and integrated circuit continued to outshine the rest with growth rates at 178.1% YoY and 33.3% YoY. Meanwhile, production growth of mining, coal and metal accelerated in January ~ February in anticipation of robust construction demand.

Nominal retail sales growth picked up to 9.7% YoY in January ~ February from 9.4% YoY in December, largely in line with the market consensus of 9.8% YoY. It is worth noting that nominal online retail sales growth accelerated further to 35.6% YoY from 28% YoY in December, despite the potential “slow-season” of online shopping during the Lunar New Year in recent years.

Reported nominal fixed asset investment (FAI) growth accelerated to 7.9% YoY in January ~ February from 7.2% YoY in December, higher than the market consensus of 7.0%. We suggest investors not to read too much into the headline FAI data due to severe data quality issues over an extended period of time. Sector wise: -

Property investment picked up notably to 9.9% YoY in January ~ February from 1.9% YoY in December; however, growth of the property investment leading indicators softened -- Property new start growth dropped to 2.9% YoY in January ~ February from 8.6% YoY in December, partially due to the higher base, while property development source of funding growth declined to 4.8% in January ~ February from 12.6% YoY in December. Both land transaction value and volume growth slowed notably in January ~ February, while property transaction growth remained resilient.

Infrastructure investment growth came in at 11.3% YoY in January ~ February, higher than the 6.7% YoY last month but lower than the 14.9% YoY in 2017 (we suggest investors not to read too much into the December data as it tends to be more volatile than usual). The tighter regulations over PPP financing and investment since November 2017 may have slowed the growth of infrastructure investment; however, qualified projects remained to be supported and the project execution may step up in the coming months.

Manufacturing investment growth declined to 4.3% YoY in January ~ February from 12.5% YoY in December but remained resilient compare with 4.8% YoY in 2017. Manufacturing investment growth may continue to recover this year, driven by the rebound of corporate investment returns.

Meanwhile, private sector investment growth also edged down to 8.1% YoY in January ~ February from 9.2% in December, in line with the moderation in mfg. FAI.

Looking forward, March activity data may “suffer” as the favorable working day effect reverses and a few other temporary factors. Short term volatilities aside, we expect underlying trend of aggregate demand growth to remain solid, considering stabilization of financial conditions since February. Lunar New Year (LNY) came in later-than-usual this year, while the 15th day after Chinese New Year fall in early March (a lot of the migrate workers return to the work site after the 15th day after LNY). Further to the LNY effect, the lengthier-than-usual “two sessions” this year have also led to delay in project starts after LNY. Therefore, we expect headline production growth to be distorted in March. However, overall activity growth, including infrastructure and property investment, may remain resilient in 2Q as construction peak season arrives, since financial conditions stabilized in February after tightening from November 2017- January 2018, in addition, infrastructure project start and execution may resume after the conclusion of the “two sessions” and the PPP project pipeline clean-up in end-March.