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Data show weaker production but recovery in property
By Wang Tao |
September 11, 2012, Tuesday
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AUGUST economic data for China have not brought much surprise: activity remained weak as growth of industrial output slowed to 8.9 percent; manufacturing investment weakened while infrastructure investment picked up further with the support of government policies; and property sector activity has stabilized and rebounded modestly.
As a result of weak industrial demand and falling commodity prices, the Producer Price Index inflation fell by 3.5 percent year on year in August, but the Consumer Price Index inflation rebounded to 2.0 percent year on year on a pickup in food prices.
The bad news is that industrial activity has weakened even further in August. This is not that surprising given the recent weakness in both export and domestic demand, and the latter due to weak property activity and weaker-than-expected policy stimulus.
In August, light industrial production slowed further while heavy industrial production stabilized. Within heavy industries, while transport equipment and universal equipment improved, the iron and steel sector slowed significantly as many companies have finally started to cut production visibly in light of weak demand. Anticipating another weak month in August, we had already revised down our growth forecast for the third quarter of 2012 from 8 percent year on year to 7.3 percent year on year.
The good news is that the property sector has shown further signs of stabilization and recovery. Property sales continued to rebound robustly, which have led to a quickened pace of housing completion, a surprising increase in new starts and land purchase, and the rebound of overall property investment.
The rebound in housing starts is earlier than we have been expecting and stronger. As we have pointed out earlier, commodity housing starts have been distorted due to the inclusion of social housing starts.
So it is possible that the quickened pace of social housing starts in August have led to the surprising rebound in overall housing starts. Given the existing home purchase restrictions, we do not foresee the current property rebound to be as strong as in the half of 2009.
What about the government's stimulus? Well, the composition of fixed investment showed that growth of infrastructure investment picked up further in August, though not strong enough to offset the deceleration in manufacturing investment.
This suggests that the government's policy stimulus continues to come through, but remain weaker than many had expected. However, planned investment for both ongoing projects and new projects continued to increase, pointing to more strength ahead in infrastructure investment.
The article was a front page summary of a UBS research report dated September 10. The opinions are her own.
As a result of weak industrial demand and falling commodity prices, the Producer Price Index inflation fell by 3.5 percent year on year in August, but the Consumer Price Index inflation rebounded to 2.0 percent year on year on a pickup in food prices.
The bad news is that industrial activity has weakened even further in August. This is not that surprising given the recent weakness in both export and domestic demand, and the latter due to weak property activity and weaker-than-expected policy stimulus.
In August, light industrial production slowed further while heavy industrial production stabilized. Within heavy industries, while transport equipment and universal equipment improved, the iron and steel sector slowed significantly as many companies have finally started to cut production visibly in light of weak demand. Anticipating another weak month in August, we had already revised down our growth forecast for the third quarter of 2012 from 8 percent year on year to 7.3 percent year on year.
The good news is that the property sector has shown further signs of stabilization and recovery. Property sales continued to rebound robustly, which have led to a quickened pace of housing completion, a surprising increase in new starts and land purchase, and the rebound of overall property investment.
The rebound in housing starts is earlier than we have been expecting and stronger. As we have pointed out earlier, commodity housing starts have been distorted due to the inclusion of social housing starts.
So it is possible that the quickened pace of social housing starts in August have led to the surprising rebound in overall housing starts. Given the existing home purchase restrictions, we do not foresee the current property rebound to be as strong as in the half of 2009.
What about the government's stimulus? Well, the composition of fixed investment showed that growth of infrastructure investment picked up further in August, though not strong enough to offset the deceleration in manufacturing investment.
This suggests that the government's policy stimulus continues to come through, but remain weaker than many had expected. However, planned investment for both ongoing projects and new projects continued to increase, pointing to more strength ahead in infrastructure investment.
The article was a front page summary of a UBS research report dated September 10. The opinions are her own.
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