In the past few weeks, economic data releases from China have fallen below expectations. Earlier this month, non-manufacturing and manufacturing surveys from the China Federation of Logistics and Purchasing came in below previous figures, suggesting a weaker outlook for future growth. Earlier this week, fixed asset investment, industrial production and retail sales (from the National Bureau of Statistics) have all missed estimates.
House prices lead the way for the Chinese economy
Historically, changes in house prices have served as a good leading indicator for the Chinese economic cycle. This is because property and its associated sectors makes up a significant portion of the Chinese economy. According to Moody’s, 25% to 30% of Chinese GDP is ultimately linked to property and construction. Recent data increasingly suggests that a cyclical downturn is coming following the conclusion of the 19th Party Congress earlier in October. A visual overview of recent House Price Index values is shown below for reference:
Here comes the down cycle: house prices decelerate in rate-of-change terms
Investment and consumption growth fail to excite
Given the significant size of investments as a proportion of the Chinese economy, data relating to investment activity is also watched closely. In particular, investors focus on fixed asset investment growth rates given China’s large appetite for natural resources. According to CEIC data, investment as a portion of Chinese GDP reached 44.2% in 2016.
As the country has been seeking to transition from an economy dominated by state-led investments to one based on private consumption, measures of private consumption also bear watching. In particular, retail sales growth is a good measure of China’s ‘new’ economy. Based on CEIC data, private consumption made up 39.2% of China’s GDP in 2016.
Looking at both sets of figures, growth has been decelerating or moving sideways in recent history. While investment activity briefly accelerated in the fourth quarter of 2016, fixed asset investments have been slowing in 2017. Retail sales, on the other hand, have flattened around 10% growth for many quarters. Unlike house prices, there are no obvious cycles prevalent in the figures. A recent overview is shown visually for reference: