China Investment August 2022

Nominal investment in urban fixed assets rose 5.8% y/y in August (July: + 5.7% y/y), above market expectations. Reading was largely driven by the faster growth in the higher education sector. The growth of the secondary sector remained unchanged, while the growth of the primary sector decreased slightly.

Overall, the investment landscape has remained dominated by public investment in infrastructure and high-end manufacturing, as the government looks to offset the impact of repeated Covid-19 restrictions and develop greater autonomy in key technology areas such as semiconductors. In contrast, private investment growth was tepid at 2.3% in the year to August. On a monthly basis, nominal fixed asset investment in urban areas grew 0.4% on a seasonally adjusted basis in August, which was higher than July’s 0.2% expansion.

While reading, analysts at Nomura warned:

“We are concerned about the quality of FAI infrastructure data [fixed asset investment], where local government officials may be strongly incentivized to report large numbers to showcase their efforts in maintaining stable growth while fighting Covid. Industrial investment growth also improved to 10.6% year-over-year in August from 7.5% in July, but the quality of this data could suffer from a similar bias to the FAI. In the coming months, FAI manufacturing growth may be affected by the inevitable slowdown in exports. Lower profits in the manufacturing sector could also weaken FAI.”

Committee members see nominal fixed investment rising 5.7% in 2022, 0.1 percentage point higher than last month’s forecast, and 5.0% in 2023.

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