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Categorized | Property

China industrial survey shows continued contraction in Q3


Posted on November 21, 2016

An independent survey of more than 2,000 companies in China’s industrial sector points to another consecutive period of contraction as cutbacks on overcapacity slowed significantly in the quarter ended September.

The Cheung Kong Graduate School of Business’s quarterly Report on China’s Industrial Economy indicates that while official Q3 GDP growth came in on-target, the new industry report’s headline business sentiment index stood at 46 for the same period.

As with activity gauges such as purchasing managers’ indices, a reading below 50 indicates contraction, while a reading above it indicates expansion.

Gan Jie, the professor at the business school who heads up the survey, said the survey did not support the view that property had driven China’s third-quarter gains.

“The influence of the real estate sector is more likely to have contributed via an indirect wealth effect, that is, households that sold their houses at high prices used the cash for consumption,” she said.

She also shrugged off the recent end of a four-year period of producer price deflation in Asia’s second largest economy:

On the one hand, it is related to improved demand and, thus, pricing power in certain sectors. On the other hand, it is more likely to reflect inflationary pressure stemming from a prolonged loosening of monetary policy. Inflation, coupled with overcapacity, would increase costs and hinder the recovery of the industrial economy.

In their responses, only 13 per cent of firms said they considered current operating conditions “good”, down 1 percentage point from the second quarter. The number of firms that made fixed-asset investment was down by the same amount, growing just 8 per cent.Only 2 per cent invested in expansion during the period, static from the second quarter, as was the 0.3 per cent share of companies that said they planned to make investment in the fourth quarter.The latest survey again showed state-owned firms did better than their private competitors, with respective readings of 51 and 46. Large firms saw less contraction than medium and small companies, based on respective readings of 48, 46 and 45.Traditionally industrial provinces also suffered the most substantial contraction in the third quarter, with Ningxia (29), Xinjiang (33), Heilongjiang (40), Liaoning (42) and Shanxi (42) occupying the bottom rungs. The worst-hit sectors included petroleum and nuclear fuel processing (38), non-metal ore processing (39) and non-ferrous metal mining and processing (38).