Positive surprise on Chinese industrial production at start of 2018

Economic activity in China rebounded at the start of the year, but the latest readings drew a mixed reaction from economists.

The pick-up in industrial activity was especially notable, with output rising by 7.2% year-on-year over the first two months of 2018, according to the National Bureau of Statistics, versus an increase of 6.2% in December.

Whereas economists had only projected growth of 6.2%.

Beijing's decision to ease back on its anti-pollution curbs was the main driver behind the improvement seen in industrial output, according to economists at Capital Economics, as air quality improved at the end of 2017 on the back of previous measures - although not everyone was onboard with that explanation.

"As the curbs have been successful, we wagered that the authorities would loosen up in Q1. Instead, it seems as though production has been moved to other cities and downstream, less polluting industries, with commodities processing production growth remaining tepid, said Freya Beamish at Pantheon Macroeconomics.

Investment also boosted growth, with fixed asset investment running at 7.9% for the first two months of the year, which was well ahead of the 7.0% rise the consensus had penciled-in.

Retail sales on the other hand fell just short of forecasts, rising at a 9.7% clip year-on-year over those two months, up from a 9.4% pace in December but below the 9.8% median forecast.

On retail sales, Beamish chipped-in: "The crackdown on micro-lending appears also to be taking its toll, but the authorities seem unlikely to let up at this stage; officials in the newly established financial regulatory architecture will be eager to cut their teeth."

Overall, said economists at UBS, "Amid today's strong activity numbers, property sales and credit growth continued to soften alongside the ongoing deleveraging campaign, pointing to moderating activities ahead.

"We are not expecting China's growth data to soften more visibly until well into Q2 and retain our forecast for GDP to slow modestly to 6.6% in 2018E."