Chinese economy cools as lending and pollution brakes applied


November 14, 2017 15:47:12

The one-two punch from authorities to slow lending and control air pollution seems to have knocked the stuffing out of the Chinese economy last month.

Key points:

  • Property investment growth over the year slowed from 9.2 pc in September to 5.4pc last month as lending conditions tightened
  • Steel production edged up, but electricity, concrete and glass all fell
  • The property slowdown appears to be impacting retail sales which also in October

All three key monthly economic indicators — industrial production, fixed asset investment (FAI) and retail sales — fell significantly from September’s reading, and all were below market expectations.

While infrastructure spending has helped keep the economy growing at a fairly robust 6.8 per cent this year, the slowdown in FAI — a proxy for infrastructure and property investment — suggests the tightening of the credit tap is having an impact.

Property investment grew at 5.6 per cent over the month, down from the more than 9 per cent growth in September.

Sales volumes in the real estate sector were down more than 8 per cent on this time last year, following a 5 per cent drop in September.

The net area of floor space ‘starts’ declined 4.4 per cent in October, after only a moderate rise in September.

This follows earlier data showing new loans issued by China’s banks hit a one-year low in October.

While the size of the slowdown surprised markets, the National Bureau of Statistics was quoted by news agencies as saying, “economic growth remains in a reasonable range.”

Measure October Market Forecast September
Industrial production (YoY) +6.2pc +6.3pc +6.6pc
Fixed asset investment (YTD) +7.3pc +7.4pc +7.5pc
Retail sales (YoY) +10pc +10.4pc +10.3pc

Property slowdown weighing on other sectors

Across key sectors, while steel production expanded in October, production of electricity, cement and glass all slowed, as did the manufacture of consumer staples such as cars and mobile phones.

Capital Economics Julian Evans-Pritchard said softer foreign demand appeared to have played a role, with growth in industrial sales for exports also more subdued.

However, Mr Evans-Pritchard’s key take on the data was that the property downturn was weighing on domestic consumption.

“The downturn in the property sector appears to be weighing on retail sales growth,” he noted.

“The upshot is that a cooling property sector and slightly softer foreign demand weighed on the economy last month.”

Mr Evans-Pritchard noted disruptions from the anti-pollution crackdown in the industrial and steel-making strongholds in north-east of the country probably contributed too.

While these drags may be offset with another bout of infrastructure spending, Mr Evans-Pritchard does think it will be enough.

“This support seems unlikely to last given that local governments are set to reduce spending in the final months of the year in order to meet budget targets,” he said.






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