Tim Condon, Chief Economist at ING, suggests that the step down in Chinese USD-value export growth in January-February leads us to expect the same for January-February industrial production growth (consensus: 5.6%, INGF: 5.5%). Key Quotes “Jan-Feb data on industrial production, fixed asset investment and retail sales are due tomorrow (the NBS releases combined Jan-Feb data to control for Lunar New Year seasonality). The weak manufacturing PMIs inform the consensus forecast of a slowdown in IP growth to 5.6% YoY from 5.9% in December. We blame the financial market turmoil from the 811 devaluation for the slowdown in IP growth to 5.9% in Aug-Dec 2015 from 6.6% in Jan-Jul 2015 (first figure). USD-value export growth took another big step down in January-February, which we think imparts downside risk to the consensus forecast (INGF 5.5%). The consensus forecast for fixed asset investment growth is 9.5% (INGF 9.5%, 10.0% in 2015). We believe hitting the 10.5% target FAI growth in 2016 depends on halting the slowdown in real estate FAI growth (second figure), for which halting the decline in housing starts is a pre-condition. Policy support for housing a watching brief. February monetary and credit aggregates data are due anytime from today. The consensus forecast for M2 growth is 13.7% (14.0% in January). The forecast for new CNY loans is CNY1.2ttr (CNY2.51tr in January). Juxtaposed with weak economic activity the rapid credit growth may indicate evergreening of NPLs. Reuters reported that the PBOC is preparing regulations to allow banks to swap NPLs for equity stakes as a means of increasing the supply of loanable funds. Earlier this week The Wall Street Journal reported that Mr. Lai Xiaomin, the chairman of Huarong, one of the four asset management companies established in the late 1990s to resolve the Big Four’s NPLs ahead of their IPOs, urged the opening of new avenues for the AMCs to raise money. Mr. Lai recommended giving AMCs access to the PBOC’s relending facility and allowing them to participate in a trial of securitizing NPLs. “The depreciating trend of bad assets not only poses a rising risk for asset management companies in acquiring assets, but also increases the difficulty of bad-asset disposal.” The route to a hard landing starts with financial distress high-leveraged corporates and ends in a banking crisis. The policy prescriptions are: support enterprise cash flows and bank liquidity. Because of the adverse export shock the first means more infrastructure and real estate investment. The measures discussed above speak to the second. Commercial bank NPLs grew 51% in 2015 to CNY1.27tr (c.US$200bn) and we consider another 50% rise the baseline for this year, required provisions against which would be CNY3 tr.” For more information, read our latest forex news.