BofA's Qiao on China's Investment Slump

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Transcript

00:00I bring in Helen Chow. She's Chief Greater China Economist at BFA Global Research.

00:05And Helen, thanks so much for joining us in studio.

00:07Well, you just heard a recap of the numbers there, but what were you watching most closely?

00:11What's the biggest focus for you this morning?

00:13I would say that there are probably two of them.

00:16The first one is the fixed asset investment.

00:18I would say, Annabelle, the number that you just read out of the script

00:22seems to be suggesting a much more significant deceleration in October,

00:26even compared to the previous two months.

00:29I would say that in August and September, we have already seen that on year-on-year basis,

00:34single month, we're talking about minus 6%, minus 7% year-on-year growth.

00:40However, this time, I think the contraction, if we back it out, for October

00:44is probably going to be close to double-digit.

00:47If that's the case, that basically implies, again,

00:50all three major components of fixed asset investment, manufacturing, infrastructure,

00:55as well as property under the FAI categories are probably not doing very well.

01:00So we need to know more about, you know, which one has fared the worst.

01:06And second point, I think, is the IP, industrial production.

01:09Industrial production numbers came down also below 5%.

01:14And relative to last month, it is quite a notable deceleration.

01:18It's kind of not a surprise, given that, you know, exports was a disappointment.

01:23So probably this number is going to be a bit lower than expected.

01:27But that said, you know, it didn't come down to 5%, but instead even lower than 5%,

01:32implying that domestic demand is indeed pretty weak.

01:35You mentioned on the investment side, given that it seems like that was the bigger disappointment.

01:38How does anti-evolution play into that?

01:42Is that the cause of this weakness?

01:44We think it's probably not the cause of the whole weakness.

01:48The fundamental problem is the lack of demand.

01:52So some people were saying that, oh, the NDRC promoted this anti-evolution campaign,

01:56and therefore manufacturing-related fixed asset investment has been decelerating much faster than before.

02:01Arguably, in previous three and a half years, we have seen property sector fixed asset investment contracting fast at double-digit levels.

02:11But during those three and a half years, infrastructure and manufacturing investment growth overall held up pretty well.

02:19So this is the first year, and especially starting from June,

02:22this is the first few months that we have seen manufacturing investment growth decelerating this much.

02:28We think it is related to the anti-evolution campaign, which started around then,

02:32but we think it's only an accelerator, because after all, the problem is we are seeing not enough demand from China.

02:40And domestic demand-wise, the property market is still ailing,

02:44and we're actually also seeing that the tariff impact on U.S.-bound tariffs exports are probably also affecting manufacturing FDI.