China infrastructure fixed-asset investment (FAI) saw a sharp deceleration last month, according to a Goldman Sachs report.

“Given the ongoing restrictions on local government debt, broader weakness in the May credit and activity data, and challenges from trade frictions between the US and China, fears about Chinese metals demand falling and metals prices suffering are on the rise,” said the firm. “We push back against such pessimism on three fronts.”

“Overall, infrastructure investment should hold up much better than the May data and market sentiment suggest, leaving room for upside surprises in Chinese metals demand and metals price performance”

The report added: “First, the link between the monthly infrastructure FAI data and Chinese metals demand has weakened notably over the past few years. The reason, we think, is because some provinces had been over-reporting economic data previously and corrections were made more recently. Such one-time corrections result in large
declines in reported investment growth, but should have limited effects on actual metals demand.

“Second, when we look at wide ranges of micro data, we see few signs of significant slowdown as suggested by the May infrastructure FAI data.”

The report concluded: “Third and most importantly, we believe growth stability is still an important policy priority in China. Overall, infrastructure investment should hold up much better than the May data and market sentiment suggest, leaving room for upside surprises in Chinese metals demand and metals price performance in 2018H2.”