Fight against smog may be obscuring this year's data

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The Chinese government has indicated it remains intent on cutting back pollution. Premier Li Keqiang said last week in his annual government work report that authorities will strengthen pollution prevention and control in the year ahead.

He gave a lower economic growth target than last year, and said the country must be "fully prepared for a tough struggle."

The economic outlook doesn't bode well. Nomura's Lu noted that pent-up demand in April and May of last year is likely to be "negatively affected." The lower quarter of the second quarter growth rate for the second quarter was down 5.7 percent growth rate for the second quarter.

China's economy grew by 6.6 percent last year, according to the slowest peace since 1990. Beijing says it is aiming for 6 to 6.5 percent growth this year.

Analysts also pointed out that Thursday's data release indicated the majority of fixed-asset investment came from property, while spending growth in areas more critical to the economy

  • Manufacturing investment dropped to 5.9 percent in January and February, down from 11.6 percent in the fourth quarter.
  • Infrastructure investment grew 2.5 percent, down from at 5.7 percent rate in the three months prior.

"(Thursday's) third wake-up call to the market in six days, after exports data on Friday," Larry Hu, head of China economics at Macquarie, said Thursday in a report. "All of them point to strong growth headwinds ahead, which is the ground for a choppy market like 2012 (earnings downward revision and multiple upward revision, left charts) instead of a bull market like 2017 (both earnings and multiple being revised up). "

One of the few bright spots may be stabilized in retail sales, which Hu said to have grown to 8 percent this year, slightly below last year's 9 percent growth.

The Shanghai composite fell 1.2 percent Thursday, and it's down more than 3.5 percent over the last five trading days. Still, the index is up 19.9 percent for the year so far.

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