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China Investment February 2020

China: Investment posts largest drop on record in January-February

Nominal urban fixed asset investment plunged 24.5% in the first two months of the year compared to the same period in 2019, the first drop since the series began in 1996. The print contrasted the 5.4% growth year-to-date in December and was much sharper than the 2.0% drop expected by market analysts.

All sub-categories posted double-digit declines, with the secondary sector leading the pack.

On a month-on-month basis, investment in urban fixed assets fell a seasonally-adjusted 27.4% in February, sharply down from the 0.1% decrease in January.

The effects of the Covid-19 should reverberate through the coming months. Ting Lu, Lisheng Wang and Jing Wang, economists at Nomura, warn that:

“The actual shock could be much bigger than those deeply negative January-February numbers suggest, because the lockdowns started only from 23 January. […] Given the relatively slow resumption rate (around 70% at the moment), we expect negative growth for all activity data in March too, though these will likely be less negative. […] As COVID-19 has quickly grown to a global pandemic, hopes for a short-term V-shaped recovery have become increasingly dim. In addition to the tremendous shock on the supply side, China will be faced with slumping external demand in coming weeks.”

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