Chinese construction activity continued ramp up in April, but concerns are rising about the sustainability of growth. A rebound in real estate investment in early 2016 has supported a surge in construction activity. In the first four months of 2016, residential construction starts rose by 18% y/y – with an acceleration in growth across March and April, underpinning growth in China’s industry sector.

However, the slowing credit growth points to downside risk to property sales in the coming months, as the credit boom at the beginning of this year is largely driven by the property rally. China’s new credit expansion was relatively modest in April – compared with the surge in the first quarter – with new aggregate financing of RMB 751 billion – down around 29% yoy.

In the absence of a broad based fundamental support for current real estate trends, any policy changes that prove adverse to construction could result in a sharp slowdown in industrial activity.

"We think there is the risk that China’s growth will drop below 6.5% in the second half of this year; therefore, we hold our below consensus forecast at 6.3% for the whole year of 2016." said  Commerzbank in a report.