China Economy Update
August 2017
China Economy Update SUMMARY
China Economics Network
▪
Latest official data shows China’s economic activity cooled slightly in July following an unexpectedly strong June;
For comments, suggestions, questions, please contact us:
▪
Growth in industrial production, investment, and exports all softened. In particular, investment in manufacturing and real estate slowed considerably, suggesting activity may be weaker in the second half of 2017;
▪ Deleveraging continued in the financial sector while monetary policy remained supportive in order to sustain growth while housing tightening policies bite.
Nicole Liu Senior Economic Advisor British Embassy Beijing [email protected] Sam Mackay First Secretary (Economics) British Embassy Beijing [email protected]
Economic activity cooled in July regain its strong momentum in the second half of 2017 with rules on local government debt becoming stricter and PPP funding practices tightening.
1. Official data shows China’s industrial production growth slowed from 7.6 per cent in June to 6.4 per cent in July over the same period last year, the lowest this year. 2. Official manufacturing PMI, a measure of activity of large companies, edged down to 51.4 in July from 51.7 in June.
% 30
Figure1 : Investment by sector (year to date, % on year before)
25 20
3. Growth of fixed asset investment softened to 8.3 per cent in Jan-Jul period, 0.3 percentage points lower than in the first half. The moderation was mainly due to a slowdown in real estate investment, which grew 7.9 per cent year-on-year in July - the lowest reading recorded this year. (Figure 1)
15 10 5 0
FAI
Real Estate FAI
Manufacturing FAI
Infrastructure FAI
6. The government attributed weaker economic activity in July to the unfavourable weather, claiming unusually high temperatures across the nation and a serious drought in southern China disrupted production and investment projects. In addition, some regions stepped up To view previous editions, measures to cut overcapacity please visit: https://in certain industries to comply with stricter environmental protection standards.
4. Growth of manufacturing investment slowed to 4.8 per cent January to July from 5.5 per cent in the first half, suggesting industrial activity was weakening. 5. On other hand, infrastructure investment held up, growing at 20.9 per cent in Jan-Jul period, a touch slower than the first half. However, front- loaded infrastructure investment may not
1
China Economy Update – August 2017
Trade growth moderated
Overseas investment supervision stepped up
7. Official data shows China’s imports and exports continued to grow in July, but at a slower pace, expanding by 11.0 per cent and 7.2 per cent (in USD terms), respectively.
14. China’s outbound direct investment remained sluggish, registering USD9 billion in July, down from USD13.6 billion in June and compared to USD13.9 billion in July last year. (Figure 2)
8. However, monthly trade figures should not be over-interpreted as they are volatile and often distorted by seasonal factors.
Figure 2: China Outbound FDI Flows (US$ mn) 25,000
60%
Housing market boom seems fading, finally
20,000
40%
9. Housing sales and new starts both slumped in July with gradual monetary and regulatory tightening in the property market, while areas of land sold hit a record high as real estate developers hoarded land in advance of further expected tightening.
continues
20%
15,000
0% 10,000
-20% -40%
5,000 -60%
0
-80%
Non-financial ODI (left axis)
10. Official data shows growth of housing sales fell sharply to 2 per cent in July from 21.4 per cent in June, the lowest since 2016. Areas of housing news starts contracted 4.9 per cent year on year in July, after a14 per cent increase in June.
Financial deleveraging lending remains robust
80%
Non-financial ODI YTD % YoY growth (right axis)
15. The State Council (China’s cabinet) released on 18th August a guidance to further regulate overseas investment by Chinese companies, officially restricting investment in real estate, hotels, film cinema, entertainment and sports clubs.
while
Stay calm, THE Autumn is coming
11. Official data suggests growth of China’s M2, a measure of total money supply, eased again in July, dipping to 9.2 per cent in July over last year from 9.4 per cent in June, the slowest growth since 1996.
16. No doubt, seasonal factors came in strongly in July’s softening economic indicators, which perhaps should not be interpreted as signs of a drastic slowdown in the coming months. However, an important element is the cooling in the property market, the major driver of growth, as a result of policy control.
12. Credit growth remained stable: total social financing came in at RMB1,220 billion in July, RMB550 billion less than in June, but well above the RMB496 billion in July 2016.
17. Despite escalating tensions between China and the United States over trade frictions and DPRK relations, Chinese policy makers gathered, quietly, at a summer resort in Beidaihe, Hebei Province, in early August for their final negotiations before the Party Congress meetings this autumn. Before that no major policy shifts should be expected.
13. In its quarterly monetary policy operation report released on 11th August, the Chinese central bank attributed the slowdown to effective financial deleveraging, noting that the total money supply has become less relevant for real economic activity. The bank pledged to keep its monetary policy stable, neither too tight (hurting the real economy), nor too loose (adding to risks in the financial system).
2
China Economy Update SUMMARY
China Economics Network
▪
Latest official data shows China’s economic activity cooled slightly in July following an unexpectedly strong June;
For comments, suggestions, questions, please contact us:
▪
Growth in industrial production, investment, and exports all softened. In particular, investment in manufacturing and real estate slowed considerably, suggesting activity may be weaker in the second half of 2017;
▪ Deleveraging continued in the financial sector while monetary policy remained supportive in order to sustain growth while housing tightening policies bite.
Nicole Liu Senior Economic Advisor British Embassy Beijing [email protected] Sam Mackay First Secretary (Economics) British Embassy Beijing [email protected]
Economic activity cooled in July regain its strong momentum in the second half of 2017 with rules on local government debt becoming stricter and PPP funding practices tightening.
1. Official data shows China’s industrial production growth slowed from 7.6 per cent in June to 6.4 per cent in July over the same period last year, the lowest this year. 2. Official manufacturing PMI, a measure of activity of large companies, edged down to 51.4 in July from 51.7 in June.
% 30
Figure1 : Investment by sector (year to date, % on year before)
25 20
3. Growth of fixed asset investment softened to 8.3 per cent in Jan-Jul period, 0.3 percentage points lower than in the first half. The moderation was mainly due to a slowdown in real estate investment, which grew 7.9 per cent year-on-year in July - the lowest reading recorded this year. (Figure 1)
15 10 5 0
FAI
Real Estate FAI
Manufacturing FAI
Infrastructure FAI
6. The government attributed weaker economic activity in July to the unfavourable weather, claiming unusually high temperatures across the nation and a serious drought in southern China disrupted production and investment projects. In addition, some regions stepped up To view previous editions, measures to cut overcapacity please visit: https://in certain industries to comply with stricter environmental protection standards.
4. Growth of manufacturing investment slowed to 4.8 per cent January to July from 5.5 per cent in the first half, suggesting industrial activity was weakening. 5. On other hand, infrastructure investment held up, growing at 20.9 per cent in Jan-Jul period, a touch slower than the first half. However, front- loaded infrastructure investment may not
1
China Economy Update – August 2017
Trade growth moderated
Overseas investment supervision stepped up
7. Official data shows China’s imports and exports continued to grow in July, but at a slower pace, expanding by 11.0 per cent and 7.2 per cent (in USD terms), respectively.
14. China’s outbound direct investment remained sluggish, registering USD9 billion in July, down from USD13.6 billion in June and compared to USD13.9 billion in July last year. (Figure 2)
8. However, monthly trade figures should not be over-interpreted as they are volatile and often distorted by seasonal factors.
Figure 2: China Outbound FDI Flows (US$ mn) 25,000
60%
Housing market boom seems fading, finally
20,000
40%
9. Housing sales and new starts both slumped in July with gradual monetary and regulatory tightening in the property market, while areas of land sold hit a record high as real estate developers hoarded land in advance of further expected tightening.
continues
20%
15,000
0% 10,000
-20% -40%
5,000 -60%
0
-80%
Non-financial ODI (left axis)
10. Official data shows growth of housing sales fell sharply to 2 per cent in July from 21.4 per cent in June, the lowest since 2016. Areas of housing news starts contracted 4.9 per cent year on year in July, after a14 per cent increase in June.
Financial deleveraging lending remains robust
80%
Non-financial ODI YTD % YoY growth (right axis)
15. The State Council (China’s cabinet) released on 18th August a guidance to further regulate overseas investment by Chinese companies, officially restricting investment in real estate, hotels, film cinema, entertainment and sports clubs.
while
Stay calm, THE Autumn is coming
11. Official data suggests growth of China’s M2, a measure of total money supply, eased again in July, dipping to 9.2 per cent in July over last year from 9.4 per cent in June, the slowest growth since 1996.
16. No doubt, seasonal factors came in strongly in July’s softening economic indicators, which perhaps should not be interpreted as signs of a drastic slowdown in the coming months. However, an important element is the cooling in the property market, the major driver of growth, as a result of policy control.
12. Credit growth remained stable: total social financing came in at RMB1,220 billion in July, RMB550 billion less than in June, but well above the RMB496 billion in July 2016.
17. Despite escalating tensions between China and the United States over trade frictions and DPRK relations, Chinese policy makers gathered, quietly, at a summer resort in Beidaihe, Hebei Province, in early August for their final negotiations before the Party Congress meetings this autumn. Before that no major policy shifts should be expected.
13. In its quarterly monetary policy operation report released on 11th August, the Chinese central bank attributed the slowdown to effective financial deleveraging, noting that the total money supply has become less relevant for real economic activity. The bank pledged to keep its monetary policy stable, neither too tight (hurting the real economy), nor too loose (adding to risks in the financial system).
2
