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    China: Investment data surprises on the downside – Danske Bank Sandeep Kanihama

    Chief Analyst, Allan von Mehren at Danske Bank, notes that Chinese data on urban investment growth surprised on the downside in May, causing concern over the strength and sustainability of the rebound in activity that happened in the early spring.Key Quotes“Fixed urban investment growth fell to 9.6% y/y year-to-date (ytd) from 10.5% y/y ytd in April. While still quite high, it was the lowest growth rate in 16 years and at odds with other signs of a moderate recovery. It is mainly private investments pulling down as overcapacity is lingering in many sectors. The development adds to concern that activity is still very much dependent on state spending and credit-fuelled growth.Debt will be in special focus this week with the IMF concluding its latest monitoring mission on Tuesday, flagging high concern over Chinese corporate debt development.Data on China is currently sending somewhat conflicting signals after today’s investment numbers. Data on imports, PMI, exports and housing data has all pointed to a moderate recovery. Our base case is still for a continued cyclical recovery over the coming quarters driven by the construction sector and exports. However, the investment data today clearly underlines that the improvement is still fragile and that structural headwinds from overcapacity and too much leverage in certain sectors are weighing on the medium-term outlook. Financial markets continue to be very sensitive to negative news on China and Chinese stocks tumbled on today’s news on investments.Other data today showed industrial production growth flat at 6.0% y/y in May and retail sales at 10.0% y/y – broadly in line with expectations.”

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