Tag Archives: fixed-asset investment

Climbing Back Up The Cliff Will Be Slower Than Falling Off

THE LATEST ECONOMIC indicators — industrial production (see above), retail sales and fixed asset investment for January and February — bring more evidence of the economic damage brought by the Covid-19 outbreak, and raise the possibility that China’s economy will contract in the first quarter.

All three indicators fell year-on-year both for the first time and by large margins, down 13.5%, 20.5% and 24.5% respectively, the National Bureau of Statistics reported. More concerning for authorities is that urban unemployment edged up to 6.2% in February, a full percentage point higher than in the previous month.

Authorities say that outside the outbreak’s epicentre, Wuhan and surrounding Hubei province, 95% of large enterprises and 60% of small and medium-sized businesses have returned to work. Nonetheless, they are still not operating at full capacity.

Further macroeconomic stimulus measures have been announced to keep the economy going. The central bank has cut banks’ reserve requirement ratios for the second time this year to make a further 550 billion yuan ($78.6 billion) available for loans and injected an extra 100 billion yuan through the medium-term lending facility. Additional injections of credit are likely to ensure businesses have the working capital to sustain a recovery in activity.

More fiscal stimulus — increased local government bond issuance and tax and fee cuts — are planned. Infrastructure projects, such as expanding 5G networks, already in the national plan will be expedited, an official of the National Development and Reform Commission says. That will help keep employment stable.

The worst of the outbreak appears to have passed for now in China, but that is not the case in the rest of the world. Significant markets for Chinese exports such as the United States and the EU are forecast to contract in the second quarter as a result. Thus recovery in China will be measured.

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February’s Dismal Numbers

The newly released economic statistics don’t make for cheerful reading in Beijing. Consumer price inflation in February was 4.9% year-on-year, unchanged from January’s rate and with food prices up 11% in February compared to 10.3% in January. The New Year holiday will have pushed food prices up somewhat but the increase along with February’s producer price index being up 7.2% suggests inflationary pressure won’t be abating soon.

Neither is the sharp increase in residential real estate investment in January and February reassuring, up 35% from the same period a year earlier, and above the 33% growth for 2010.  Overall fixed-asset investment growth was up 24.9% year-on-year for the two months, compared to 23.8% for 2010. Central government investment was up 6.3% but local governments’ remains strong, up 26.9%. Beijing won’t be happy about that as it suggests the government is struggling to rein in the economy and make headway in its intention to rebalance the economy away from investment.

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