China Economy Update - Gov.uk
September 2017
China Economy Update SUMMARY ▪ ▪
▪
China Economics Network
Latest official data shows China’s economy weakened for the second consecutive month in August ; Growth in investment, industrial output, and retail sales slowed. Tackling on shadow banking continued, while bank lending remained robust; The government hailed the moderation and attributed it to supply-side reform efforts, such as administrative capacity cutting in heavy industries and intensified environmental protection measures.
Economic activity weakened a touch in August
For comments, suggestions, questions, please contact us: Nicole Liu Senior Economic Advisor British Embassy Beijing [email protected] Sam Mackay First Secretary (Economics) British Embassy Beijing [email protected]
government debt and tighter PPP funding begin to bite. 5. Growth of manufacturing investment grew at 4.5 per cent January to August compared to 5.5 per cent in the first half, in line with slowing industrial production.
1. Official data shows China’s industrial valueadded growth slowed further from 6.4 per cent in July to 6.0 per cent in August over the same period last year, the lowest this year. The slowing was mainly in the mining sector, which contracted 3.4 per cent due to production cuts of environmental protection measures.
6. On other hand, real estate investment held up, expanding 7.9 per cent in the first eight months. However, as financing channels narrowing, developers will have to rely more on sales returns for future investment, which could be a potential problem as housing sales cool down and inventory has peaked.
2. Growth of retail sales slowed to 10.1 per cent in August, 0.3 percentage points lower than July. In particular, oil and home related consumption dropped considerably at a rising oil price and cooling housing market. 3. Growth of fixed asset investment softened to 7.8 per cent in the Jan-August period. Within this, public sector investment grew 11.2 per cent, while private investment, accounting for 60 per cent of total investment, dipped to 6.4 per cent in the first eight months, suggesting private SMEs are still facing challenges in accessing finance for investment. (Figure 1)
%
Figure 1: Investment (year to date, % on year before)
30 25 20 15 10
To view previous editions, please visit: https://
5 0
4. Infrastructure investment, an important driver of total investment, grew 19.8 per cent in JanAugust period, slowing from nearer 30 per cent early in the year as new controls over local
FAI
1
State Sector FAI
Private FAI
China Economy Update – September 2017
Trade momentum also weakening
Figure 2: Increased Total Social Financing and Growth of Money Supply RMB Billion
%
7. Official data shows growth of China’s exports continued to slow to 5.5 per cent in August from 7.2 per cent in July (year on year, in USD terms). Imports also held up on robust domestic demand, grew 13.3 per cent in August from 11 per cent in July (in USD terms).
4,000
16
3,500
14
8. Continued trade tensions between China and the US and the strengthening US dollar continue to concern analysts.
500
12
3,000
10
2,500
8
2,000 6
1,500
4
1,000
2
0
0
Housing market continued to cool
-2
New increased TSF
New Increased Loans in RMB
Growth of broad money supply (M2, right axis)
Growth of TSF stock (right axis)
Government points to improved structure
9. Official data shows average new home prices in China’s 70 major cities grew 8.3 per cent in August over last year, marking the ninth consecutive monthly deceleration from a peak in December 2016. In particular, for the first time in three years, housing prices in China’s 15 most popular cities for property investment all stalled on a monthly basis six months after the government introduced tightening measures.
13. This is the last official data release before the 19th Party’s Congress. The government argued the numbers show improvement in the ‘quality’ of growth. It emphasized, through supply-side reform (such as administrative capacity cutting in heavy industries and intensified environmental protection measures), economic structure is improving and new growth engines are strengthening.
10. However, official data also shows house prices in smaller tier 3 and 4 cities rose 0.4 per cent in August over July, faster than national average of 0.2 per cent, indicating speculators are heading from big markets to smaller cities. According to a recent survey by the central bank, nearly a third of Chinese households believe housing prices will keep rising in the coming months, despite tightening measures.
14. The official statistics show profits of large industrial companies up 21.2 per cent in Jan-Jul period year on year while profits of services companies grew 22.6 per cent, and investment in high-tech manufacturing grew 19.5 per cent in the first eight months of 2017 while investment in high energy consuming manufacturing dropped 1.6 per cent.
Money supply slows, while bank lending continues to ‘serve the real economy’
15. Those new growth drivers: In August, output of high-tech manufacturing grew 12.9 per cent, 6.9 percentage points higher than overall industrial production. Production of robots, new energy vehicles, and SUVs surged 63 per cent, 25.4 per cent and 17.2 per cent, respectively in Jan-Aug period.
11. Official data suggests growth of China’s money supply (M2) weakened further to 8.9 per cent in August from 9.2 per cent in July over last year as financial regulatory tightening continued in shadow banking sector.
16. However, for the first time since 1999, in September, Standard & Poor’s cut China’s sovereign credit rating by one notch warning medium term economic and financial risks after “a prolonged period of strong credit growth”.
12. Meanwhile, credit growth remained steady. In August new increased total social financing and bank loans, largely corporate loans and mortgages, were both higher than July. Growth of stock of TSF and bank loans remained at 13.1 per cent and 13.8 per cent, respectively, in August. (Figure 2) 2
China Economy Update SUMMARY ▪ ▪
▪
China Economics Network
Latest official data shows China’s economy weakened for the second consecutive month in August ; Growth in investment, industrial output, and retail sales slowed. Tackling on shadow banking continued, while bank lending remained robust; The government hailed the moderation and attributed it to supply-side reform efforts, such as administrative capacity cutting in heavy industries and intensified environmental protection measures.
Economic activity weakened a touch in August
For comments, suggestions, questions, please contact us: Nicole Liu Senior Economic Advisor British Embassy Beijing [email protected] Sam Mackay First Secretary (Economics) British Embassy Beijing [email protected]
government debt and tighter PPP funding begin to bite. 5. Growth of manufacturing investment grew at 4.5 per cent January to August compared to 5.5 per cent in the first half, in line with slowing industrial production.
1. Official data shows China’s industrial valueadded growth slowed further from 6.4 per cent in July to 6.0 per cent in August over the same period last year, the lowest this year. The slowing was mainly in the mining sector, which contracted 3.4 per cent due to production cuts of environmental protection measures.
6. On other hand, real estate investment held up, expanding 7.9 per cent in the first eight months. However, as financing channels narrowing, developers will have to rely more on sales returns for future investment, which could be a potential problem as housing sales cool down and inventory has peaked.
2. Growth of retail sales slowed to 10.1 per cent in August, 0.3 percentage points lower than July. In particular, oil and home related consumption dropped considerably at a rising oil price and cooling housing market. 3. Growth of fixed asset investment softened to 7.8 per cent in the Jan-August period. Within this, public sector investment grew 11.2 per cent, while private investment, accounting for 60 per cent of total investment, dipped to 6.4 per cent in the first eight months, suggesting private SMEs are still facing challenges in accessing finance for investment. (Figure 1)
%
Figure 1: Investment (year to date, % on year before)
30 25 20 15 10
To view previous editions, please visit: https://
5 0
4. Infrastructure investment, an important driver of total investment, grew 19.8 per cent in JanAugust period, slowing from nearer 30 per cent early in the year as new controls over local
FAI
1
State Sector FAI
Private FAI
China Economy Update – September 2017
Trade momentum also weakening
Figure 2: Increased Total Social Financing and Growth of Money Supply RMB Billion
%
7. Official data shows growth of China’s exports continued to slow to 5.5 per cent in August from 7.2 per cent in July (year on year, in USD terms). Imports also held up on robust domestic demand, grew 13.3 per cent in August from 11 per cent in July (in USD terms).
4,000
16
3,500
14
8. Continued trade tensions between China and the US and the strengthening US dollar continue to concern analysts.
500
12
3,000
10
2,500
8
2,000 6
1,500
4
1,000
2
0
0
Housing market continued to cool
-2
New increased TSF
New Increased Loans in RMB
Growth of broad money supply (M2, right axis)
Growth of TSF stock (right axis)
Government points to improved structure
9. Official data shows average new home prices in China’s 70 major cities grew 8.3 per cent in August over last year, marking the ninth consecutive monthly deceleration from a peak in December 2016. In particular, for the first time in three years, housing prices in China’s 15 most popular cities for property investment all stalled on a monthly basis six months after the government introduced tightening measures.
13. This is the last official data release before the 19th Party’s Congress. The government argued the numbers show improvement in the ‘quality’ of growth. It emphasized, through supply-side reform (such as administrative capacity cutting in heavy industries and intensified environmental protection measures), economic structure is improving and new growth engines are strengthening.
10. However, official data also shows house prices in smaller tier 3 and 4 cities rose 0.4 per cent in August over July, faster than national average of 0.2 per cent, indicating speculators are heading from big markets to smaller cities. According to a recent survey by the central bank, nearly a third of Chinese households believe housing prices will keep rising in the coming months, despite tightening measures.
14. The official statistics show profits of large industrial companies up 21.2 per cent in Jan-Jul period year on year while profits of services companies grew 22.6 per cent, and investment in high-tech manufacturing grew 19.5 per cent in the first eight months of 2017 while investment in high energy consuming manufacturing dropped 1.6 per cent.
Money supply slows, while bank lending continues to ‘serve the real economy’
15. Those new growth drivers: In August, output of high-tech manufacturing grew 12.9 per cent, 6.9 percentage points higher than overall industrial production. Production of robots, new energy vehicles, and SUVs surged 63 per cent, 25.4 per cent and 17.2 per cent, respectively in Jan-Aug period.
11. Official data suggests growth of China’s money supply (M2) weakened further to 8.9 per cent in August from 9.2 per cent in July over last year as financial regulatory tightening continued in shadow banking sector.
16. However, for the first time since 1999, in September, Standard & Poor’s cut China’s sovereign credit rating by one notch warning medium term economic and financial risks after “a prolonged period of strong credit growth”.
12. Meanwhile, credit growth remained steady. In August new increased total social financing and bank loans, largely corporate loans and mortgages, were both higher than July. Growth of stock of TSF and bank loans remained at 13.1 per cent and 13.8 per cent, respectively, in August. (Figure 2) 2
