CHART 2: THE LI KEQIANG INDEX VERSUS CHINESE REAL GDP GROWTH 30% 16% 15% 9 ae 14% 20% 13% 12% 15% 11% 10% 10% 9% 8% 9, 5% 7% 0% ____-____________—_______6% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 ML) Kegiang Index (Left Hand Side) Mle Chinese Real GDP Year-over-Year (Right Hand Side) Source: Bloomberg Furthermore, CHART 3 shows that, directionally, the Li Keqiang | We believe China's strong reflation, thanks to the infrastructure Index maps pretty well to the ebb and flow of Chinese property buildout and the unprecedented property price increases in prices, confirming the thesis that property prices have much major cities, may have been the most impactful yet under- impact on the Chinese economy. appreciated catalyst that fueled the synchronized global A close examination of CHART 2 raises an interesting observation: economic recovery since the summer of 2016. The good news Lately, the Li Keqiang Index has accelerated much more than the 1S that China's growth is likely to remain healthy for the reported GDP growth. One could surmise that China’s actual remainder of 2017, as stability 18 par amount ahead of the GDP growth (measured on a year-over-year basis rather than on quinquennial power me ansition this autumn. However, the an annualized sequential change) may have been greater than U"¢ertainty starts to rise as we look beyond 2017. the reported 6.9% in the first quarter of 2017. This could be rationalized by the conjecture that the actual growth in early ghadow Boxing 2016 may have been lower than the reported 6.7%. ; . _ _ Over the past few years, China watchers have been urging One inelicatan, of Chinas strong growth is the year-over-year Chinese policymakers to introduce bold reforms and market changes in its imports as shown in CHART 4. Imports surged — fy-ces to tackle the country’s rapidly growing leverage, over j F Pa eas 24% year “aYel“yeer a US, dollar terms, and 31 ‘ in renminbi capacity, and housing bubble. However, with stability