Recovery is still missing for China

Fixed asset investment (FAI) surprisingly weakened to 9.2% yoy in August, the slowest in a decade. Manufacturing investment growth only ticked up fractionally, despite a positive base effect. Mining investment recorded a sharper decline of 8.2% yoy in August after dropping 1.7% yoy in the previous month. Most worryingly, property investment fell into contraction again from 2.8% yoy in July to -1.2% yoy in August. New starts growth improved slightly in yoy terms, albeit entirely owing to a positive base effect. Housing sales growth remained fairly decent for the fifth month, but this series seems to have lost some of its predictive power for housing construction.

Industrial production (IP) was another big disappointment. Its growth ticked up by a paltry 0.1ppt from the surprisingly slow pace of 6% yoy in July to 6.1% yoy in August, in spite of a strong positive base effect. More than four-tenth of the sectors saw growth weakening in August. Even the statistical bureau commented that the recovery was not so solid and that downward pressures on growth continued to be relatively sizable amid weak demand. Nominal retail sales printed above expectations, growing 10.8%yoy in August (vs. 10.5% in July). However, real retail sales growth remained unchanged. That said, a bright spot is that durable goods consumption strengthened, with acceleration in sales of automobiles and household goods. 


All the headline disappointment occurred despite the clear presence of a stronger fiscal push. On-budget spending went from strength to strength, accelerating from 27.1% yoy in July to 28.4% yoy in August. More importantly, infrastructure investment growth jumped from 15.8 yoy in July to 21% yoy in August, on the back of another strong bank lending expansion.