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China data points to solid Q1 economic growth

Despite Trump's tariff threat, Jan-Feb industrial output rises 7.2%, fixed-asset investment growth picks up to 7.9% and private sector fixed-asset investment is up 8.1%

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China's growing focus on the production of higher-value goods, output of computers, telecommunications equipment and other electronics rose 12.1 per cent on year.

Beijing

CHINA'S industrial output grew more strongly than expected at the start of the year, suggesting that the economy has sustained solid momentum even as US President Donald Trump readies hefty tariffs against one of its most strategic growth drivers - technology.

Tariffs on tech exports could potentially hit the fastest growing segment of China's industrial sector, an area that the country's leaders have been keen to promote as they push for "higher quality" economic growth.

Mr Trump is seeking to impose tariffs on up to US$60 billion of Chinese imports soon and will target the technology and telecommunications sectors, Reuters reported on Tuesday.

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The latest US trade threat, which follows the imposition of tariffs on steel and aluminium last week, overshadowed unexpectedly robust Chinese industrial and investment growth data for the first two months of the year.

Industrial output in January-February rose 7.2 per cent from the same period a year earlier, the National Bureau of Statistics said on Wednesday, surpassing analysts' estimates for a rise of 6.1 per cent and picking up sharply from 6.2 per cent in December.

Analysts had expected a slight stumble in output due to a crackdown on heavily polluting industries, but the data showed that China's steel output rose to its highest in months as mills prepared for a seasonal pick-up in construction in spring.

Coal and power output were also up sharply, possibly reflecting a spell of bitterly cold weather.

Reflecting China's growing focus on the production of higher-value goods, output of computers, telecommunications equipment and other electronics rose 12.1 per cent on year, extending a long period of double-digit growth.

Output of industrial robots rose around 25 per cent.

However, data from China early in the year is typically treated with caution due to distortions caused by the timing of the week-long Chinese New Year celebrations, which fell in late January 2017 but started in mid-February this year.

As such, a clearer picture of China's economic health may not emerge until first-quarter data is released in April.

Many economists expect China's economic momentum to slow this year, weighed down by a cooling property market and the government's clampdown on riskier lending practices, which is pushing up corporate borrowing costs.

But a clutch of readings available so far, ranging from official data to private surveys, suggest China's growth has picked up so far this year, keeping a synchronised global recovery on track.

Trade data last week showed that exports unexpectedly surged at the fastest pace in three years in February even as trade relations with the United States rapidly deteriorate.

China runs a US$375 billion trade surplus with the United States and when President Xi Jinping's top economic adviser visited Washington recently, the administration pressed him to come up with a way of reducing that number.

"While risks of escalation in US-China trade tensions exist, we expect China to remain relatively restrained in its response and, as a result, overall economic damage to stay contained," Louis Kuijs, head of Asia economics at Oxford Economics said in a note.

China's fixed-asset investment growth also unexpectedly picked up to 7.9 per cent in January-February. Analysts polled by Reuters had predicted it would cool to 7 per cent from a 7.2 per cent pace in all of 2017.

Private sector fixed-asset investment rose 8.1 per cent, compared with an increase of 6 per cent in 2017. Private investment accounts for about 60 per cent of overall investment in China.

Investments by state firms rose 9.2 per cent over the period, though the gap between public and private sector investment narrowed over last year.

Confounding expectations of a slowdown, real estate investment in China rose 9.9 per cent, the fastest pace in three years, though property sales softened in the face of government cooling measures.

While infrastructure remains the main engine behind China's investment growth, economists at ING note that investment in high-tech manufacturing has also expanded rapidly, and was up 17 per cent last year, further highlighting the sector's vulnerability to punitive US trade measures.

Premier Li Keqiang said last week that China aims to expand its economy by around 6.5 per cent this year, the same target that it handily beat in 2017 thanks in part to massive government infrastructure spending and record bank lending.

But comments by top officials at China's parliament in the past week suggested that Beijing will be more cautious about spending this year while it focuses on reducing the risks from a rapid build-up in debt.

After years of heavy pump-priming by Beijing, markets worry that less generous stimulus could slow the pace of expansion not only in China but globally. China is already believed to be contributing about a third of total world growth. REUTERS

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