China’s activity data for January and February were mixed. However, it indicated signs of growth stabilization and a more rapid rebound than expected in certain pockets of economy. China’s property market rebounded in the first two months of 2016. Housing sales rose 28% y/y, the most rapid pace seen since May 2013.

Meanwhile, land transactions increased at a positive rate, in line with anecdotal proofs of solid land bidding activities. Hence, property investment witnessed the fist positive single-month growth rate since mid-2015. Several local governments in third and fourth tier cities have brought in many incentives to increase the pace of de-stocking.

Urbanisation-related policies are likely to have an important role in de-stocking process that will help to maintain the rebound in housing investment. Housing policies are expected to be more nuanced in 2016. Local governments are expected to mainly drive the policies, given different market dynamics. First and second tier cities of China might witness macro-prudential tightening, whereas third and fourth tier cities are likely to focus of de-stocking.

Meanwhile, investment in infrastructure also increased at a strong pace, growing 16% y/y in January and February of 2016. As compared to earlier years, the pace of infrastructure investment growth will be closely connected to fiscal expansion pace, as a result of fiscal consolidation in 2014.

“Given strong commitment to a more expansionary fiscal policy and a large backlog of approved projects, we expect infrastructure investment to remain a key growth driver in 2016”, says HSBC.

However, retail sales and industrial production data was weaker than anticipated. Slower growth in heavy industries, particularly over-capacity sectors, has mainly driven the weakness in industrial output.  Industrial production is expected to be impacted by attempts to reduce over-capacity in 2016 as the total size of all sectors over-capacities make up one third of total IP. However, growth in manufacturing sector output continues to be relatively stable in the first two months of 2016.

Growth in retail sales was also below expectations. According to the National Statistics Bureau, base effect in car sales was one of t he main reason for the downside surprise. Sales of most consumer items also increased at a slower pace as compared to that of 2015, implying a more fundamental relationship with slower income and economic growth.

“We continue to expect retail sales to outpace GDP growth in 2016, but the pace of growth may slow from the rate seen in 2015”, says HSBC.

In all, the data indicates that there are signs of stabilisation and pockets of rebound in the economy. If this trend remains, there will be stabilisation and sequential rebound in the following months. It is important that policy easing, especially fiscal easing continues. PBoC officials have reiterated their easing bias, implying that both fiscal and monetary policies will carry on easing in the following months.