CHINA: Jan-Feb economic data is quite mixed, with retail sales weaker than expected but investment picking up steam. We believe that yoy Q1 GDP growth may be similar to Q4 partly due to an unfavorable base effect for March.

The slowdown in RMB lending in Feb is consistent with the annual target of M2 and new lending, and therefore should not be interpreted as a sign of
monetary tightening. Profit growth will likely offset the slowdown in social financing growth. We think 2013 will be similar to 2004-06, when accelerating
GDP growth was achieved despite relatively low M2 and loan growth, and investments were increasingly financed by retained profits.

The railway ministry reform should pave the way for government absorption of part of the railway debt, future capital injections into the railway corporation or subsidiaries, railway tariff increases, and eventually the public listing of railway operators on the stock markets.

The surprise announcement of the State Council on the 20% capital gains tax on properties is followed by a number of indications from ministries that
exemptions (depending on holding period, age, size, etc.) will be offered to avoid hurting genuine demand. We believe the final version of this tax will have a limited impact on the overall property market and economy.

HONG KONG: We have revised up our 2013 growth forecast to 3.5%. Inflation will likely continue to decline, but only gradually.

A US fiscal shock (and the sequester doesn’t seem to have been enough of one) or renewed Eurozone crisis would hit Hong Kong hard via a decline in
exports. Government measures to combat property price inflation could lead to a price discontinuity and negative wealth effect.

• [Editor:editor]