In February, new bank lending fell markedly to CNY 1.17 trillion from CNY 2.03 trillion in January, while total social financing (TSF) also dropped to CNY 1.15 trillion after hitting a new record of CNY 3.74 trillion in the earlier month. In the first two months of 2017, the stocks of bank lending and TSF (adjusted for local government bond issuance) rose 12.9 percent and 15.9 percent from a year ago, slightly less than the 13.4 percent and 16.1 percent in December 2016.

Looking ahead, recent global trade indicators show a decent momentum going into 2017 and we expect it to grow by 2.7 percent this year, from 1.4 percent in 2016. China should, in principle, benefit from any pick-up in growth in the US from more expansionary fiscal policy under a Trump administration. But China's exports to the US will face a harsher climate under a Trump administration, which should weigh on export growth. Overall, we expect the export outlook to improve somewhat this year, helped by the 5.7 percent real trade-weighted depreciation in the year to end-December.

Domestically, we expect infrastructure investment to remain solid, in a year of a major leadership reshuffle. And corporate investment should benefit somewhat from renewed profit growth. But, even though housing activity surprised on the upside in the first two months, we expect the tightening of housing purchasing restrictions in many large cities to weigh on real estate investment this year. We forecast consumption growth to ease on moderating real wage growth, but to remain relatively solid.

Meanwhile, the government work report presented at the plenary session of the National People’s Congress (NPC) confirmed a slight shift in policy stance to somewhat more emphasis on reducing financial risks. The GDP growth target was adjusted from 6.5-7 percent last year to “around 6.5 percent, or higher if possible in practice” for this year. The report stressed a “prudent and neutral” monetary policy as the targets for growth of M2 and TSF were reduced from 13 percent in 2016 to 12 percent this year. Based on plans for local government bond issuance, we estimate that overall credit growth is targeted at 14.8 percent, slightly more than we had expected. We do not expect a benchmark interest rate rise this year, and official fiscal policy will also remain supportive.

Following the solid data for the start of the year and the signaling of a slightly more dovish policy stance during the recent NPC compared to what we had expected, we now expect GDP growth to slow to 6.5 percent this year, up from 6.3 percent before. High uncertainty calls for vigilance of policymaking. But at least the current growth momentum gives policy some two-way leeway.