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China Investment May 2018

China: Investment growth plunges in May

China’s urban fixed asset investment expanded 6.1% annually in the first five months of the year, marking the softest expansion since early 1996. The result was down from the 7.0% increase in the first four months of the year and fell short of market expectations of a 7.0% rise.

Fixed asset investment growth moderated in the primary and the tertiary sectors, while investments in the secondary sector steadied. While investments in the real estate sector moderated only marginally in the January–May period compared to the first four months of the year, it indicates that the housing market cycle is likely over its peak.

From an ownership perspective, investment growth in fixed assets of private companies continued to expand at a faster pace than investments made by state-owned firms.

A month-on-month comparison shows that investment in urban fixed assets rose a seasonally-adjusted 0.47% in May, broadly stable from April’s 0.49% rise.

Ting Lu, Wendy Chen and Lisheng Wang, analysts at Nomura, add that the main drags on investment growth in May were:

“1) A rapid contraction of shadow banking activity, which had been a major channel for infrastructure and property investment. Aggregate financing halved in May from April. 2) The deleveraging drive and the central government’s efforts to clean up PPP projects; the central government also stopped a number of local government infrastructure projects in an effort to control local government debt. 3) Rising credit spreads pushed funding costs for local governments and property developers higher.”

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