China sees sharp drop in August; still waiting for Guangdong

The Chinese economy slowed sharply in August, preliminary data shows. Although trade data has not yet been released, output and investment are both down significantly, sending stocks lower on regional indices. (Trade is likely to be worse, if recent trends are a guide.)

Guangdong, meanwhile, has yet to release its full GDP data for July, let alone August. One can only presume that it is taking the National Bureau of Statistics a bit longer than normal to verify the provincial data from around the country. That, or there is growing sensitivity about their release that requires further internal debate and clarification. 

At the national level, data released by the NBS today paints a bleak picture. As Caixin reports, although investment in infrastructure is starting to turn around, up 4.2% YoY in the first eight months, 0.6 percentage point faster than the first seven months, overall fixed-asset investment grew only 5.5%, weighed down by declining investment in real estate and industrial projects.

The country’s industrial machine, meanwhile, is faring worse. Value-added industrial output, which measures production at factories, mines and utilities, rose 4.4% YoY in August. That was down from 4.8% in July, and the lowest growth rate since early 2009. It missed the Bloomberg median forecast of 5.2% growth.

Retail sales are not yet falling sharply. This number, which includes spending by governments, businesses and households, grew 7.5% YoY in August, down slightly from 7.6% growth in July. However, it has been in gradual decline for longer than the other indicators.

Guangdong is likely to have followed the national lead downward in output. In fact, the province has seen its manufacturing sector hit harder than the rest of the country this year. However, growth in services will be the key indicator to watch, and these have not yet been released at either the national or provincial level. Moreover, fixed-asset investment in Guangdong has been nearly double the national average for the past two years, and it will be important to see what is happening there, too, once the provincial numbers are out.

Our thesis likely remains intact: Guangdong is feeling the pain of the global slowdown in trade, as well as its own industrial restructuring. However, it is better-placed than the rest of the country due to its stronger private sector catering increasingly to the domestic market, especially in advanced technologies, as well as its more mature stage of high-speed railway development. We will keep a sharp lookout for the provincial numbers once they are published.

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