Update on the Chinese economy

With everything that has happened closer to home throughout 2016, it’s easy to forget that the Chinese economy was making headlines at the start of the year. But whilst the fallout of the Brexit vote and the Bank of England’s base rate cut are at the forefront of many minds, it’s important not to completely disregard what’s happening in China. The country’s economy saw a surprise boost during August, with both consumer purchases and industrial output beating expectations. Industrial production saw a year-on-year increase of 6.3%, a rise from July’s 6% and above the forecast of 6.2%. August therefore showed the fastest growth in industrial output in the past five months.

The first eight months of 2016 have seen investment in buildings and other fixed assets in China grow better than expected, up 8.1% from the same period in the previous year. Retail sales meanwhile offered growth of 10.6% compared to August 2015, up from 10.2% during the previous month. Urban fixed asset investment increased 8.1% year-on-year, the same figure as seen in July and exceeding the expected 7.9%.

All of this paints a very positive picture for the Chinese economy, and should mean that the People’s Bank of China will not need to cut interest rates or impose other forceful monetary easing methods. Whilst this will help growth, it could also potentially worsen problems with debt and overcapacity in the country.

One of the reasons behind the higher-than-expected figures is increased property sales in major urban areas. Sales in housing rose 25.6% in the first two thirds of 2016 compared to the same period in 2015. The increased spending on infrastructure and housing also benefited the steel, cement and coal sectors.

Whilst spending on property and infrastructure is expected to decrease during the final quarter of 2016, China is still on track to hit its growth target of between 6.5% and 7% by the end of the year. All of which means it’s perhaps more important to keep an eye on the Chinese economy now than at any point in recent history.

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