The Capital Economics China Activity Proxy (CAP) suggests that growth accelerated for a ninth consecutive month in December to the fastest in more than three years. For the first time since 2011, our estimate of growth is no weaker than that shown by the official GDP data. But we don’t think this strength will be sustained. A closer look at the CAP’s breakdown reveals that the pick-up last month was driven mainly by faster growth in the domestic freight and passenger traffic components. Freight growth surged in December to the fastest in nearly five years. This may be linked to the early arrival of Spring Festival in January – seasonal swings around the holiday have increased in size over the past two years. Stepping back, at 6.8% the economy is now expanding faster than is sustainable (we put trend growth at around 4½~5%). With policy support now being withdrawn, growth is set to peak soon.
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