Macro Monday:Growth weighed on by tighter policy

Economy running stable for now but set to slow later: March PMI will bereleased next Friday and we expect it to rise to 51.8 (Feb: 51.6), which is alsothe new high since April 2012. High frequency data suggest that the industrialproduction is running stable in March. That said, we expect 1Q17 to the peakof this round of cyclical recovery, which is mainly driven by reflation,restocking and real estate. PPI inflation might have already peaked in Feb,while the property sector is set to enter a down-cycle later this year. Meanwhile, the final demand in the economy seems pretty soft, evidenced byfalling food prices. CPI inflation in March could be well under 2% YoY. Autosales have also decelerated notably entering 2017. Moreover, policy hasturned significantly tighter over the past few months, as the funding growth forFAI slumped in Jan-Feb. The PBoC hiked the interbank rates twice on Feb 10and March 16 and more will come. Overall, we are turning more cautious onChina’s economy, especially for 2H17. We also don’t expect any substantialprogress in SOE reform this year.