Chinese industrial output and urban fixed asset investment topped expectations in the first two months of the year, suggesting that the nation’s industrial and construction sectors continue to perform strongly after recovering in 2016.

However, while they both improved from the levels reported late last year, retail sales growth slowed sharply, casting a shadow over the health of the Chinese consumer at present.

According to China’s National Bureau of Statistics (NBS), industrial output rose by 6.3% in January and February compared to a year earlier, beating expectations for an increase of 6.2%. Previously output rose by 6% year-on-year in December.

Output of chemicals, non-metal minerals, general equipment, transport items, machinery all grew at a faster year-on-year pace than the levels reported in December.

Production of motor vehicles, reflective of booming car sales last year, grew at a slower pace, lifting 11.1% compared to an increase of 12.7% in the 12 months to December.

Electricity production growth also slowed, increasing by 6.3% year-on-year from 6.9% in December. Coal output fell by 1.7% from 12 months earlier, a narrower decline than December, although coking coal bucked the trend, increasing by 4.6% over the same period.

Production of crude steel and steel products both grew at a faster pace than the levels reported in the year to December, rising by 5.8% and 4.1% respectively.

Urban fixed asset investment grew by 8.9% in the first two months of the year compared to the same period in 2016, easily accounting for expectations for growth of 8.2%. It was also higher than the 8.1% increase recorded in 2016.

Fixed asset investment measures spending on urban infrastructure such as factories, roads, power grids and property.

Suggesting that stronger economic conditions both at home and abroad are encouraging firms to lift investment levels, the NBS said that private investment lifted by 6.7% from 12 months earlier, a sharp improvement on the 3.2% level of December and negative levels reported in early 2016.

Private investment accounts for around 60% of total investment in China.

Public investment grew by 14.4% from a year earlier, above that for private firms but down on the 20% plus levels reported late last year.

By sector, investment by the tertiary sector — largely services — increased by 12.2% year-on-year, up from 10.9% in 2016. Investment by secondary industries, or its industrial sector, grew by a far smaller 2.9% over the same period.

Of importance to the outlook for commodity prices, investment in real estate jumped by 8.9% from a year earlier, a noticeable pick-up on the levels seen late last year.

The NBS said that construction starts and sales by floor space grew by 10.4% and 25.1% respectively from the first two months of 2016.

Retail sales, one of the pillars the Chinese government has tasked to grow economic activity in the years ahead, was the exception to the rule, recording a sharp deceleration in growth in early 2017.

But it may have been driven by temporary factors.

They grew by 9.5% in January and February from the same period a year earlier, below the 10.9% pace seen in the year to December and expectations for a smaller moderation to 10.5%.

The increase was the smallest reported since February 2006, some 11 years ago.

The NBS said automobile sales slumped by 1% compared to the same period a year earlier, perhaps explaining the drop in the headline sales figure.

The government had previously halved sales on new small-engine cars — partially in response to improving air quality — which expired at the end of last year.

According to a separate report from China Association of Automobile Manufacturers, sales declined 1.1% from a year earlier to 2.2 million vehicles, down from the 9.1% expansion recorded in December.

Sales of home appliances also decelerated sharply, growing by 5.6% year-on-year from 9.5% in December.

This, too, could be reflective of tighter government restrictions on home property purchases introduced in more than 20 of the nation’s largest cities to curb rapid price growth.

“Activity in China’s real economy has improved, with the business environment now much better than at the same time last year,” said Sheng Laiyun, a spokesman at the NBS, following the release of today’s reports.

Despite the sharp deceleration in retail sales — something that looks more like an anomaly at this point — it’s hard to disagree.

The Chinese economy is certainly looking better. However, that’s not the main concern of financial markets right now.

It’s the debt growth that’s been used to deliver it.

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