As part of their efforts to shore up the economy, authorities in China continue to maintain an accommodative policy stance marked by local government bond issuance and liquidity injections into the banking sector. In August, the country’s accumulated fixed asset investment growth rose to -0.3% YOY, up from -1.6% YOY in July. This is in line with China’s latest credit growth figure, which accelerated to its fastest rate since at least July 2017, at 13.3% YOY in August.
While the outlook for continued growth in investment remains positive overall, it is not uniform across sectors. In late August, Chinese regulators announced policies to tighten financing restrictions for real estate development as they attempt to reduce or slow debt growth in the real estate market.
While overall investment will continue to grow in China for the remainder of this year, recent developments indicate that different sectors’ growth trajectories will moderately diverge. We expect Beijing’s latest measures to moderately slow investment in the real estate sector, particularly for over-leveraged developers. In contrast, China’s manufacturing investment is likely to gradually accelerate due to lower borrowing costs, improving orders, and ameliorating industrial profits. Finally, infrastructure investment growth will trend upward at a faster pace in Q4 due to an acceleration in local government bond issuance in August.
B2B firms should align with their local teams in China on how best to capitalize on continued recovery stemming from growing investments in Q4. Given the dynamics at play for different sectors, firms should consider reallocating resources toward areas that are likely to experience continued or accelerated growth such as infrastructure and manufacturing. Firms with exposure to China’s real estate sector should consider engaging their clients to understand the potential impact of recent policy shifts on their businesses. If possible, firms should prioritize real estate clients who are less impacted by the tightened regulations (i.e., firms with lower leverage ratios or alternative financing options).
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