China Economic Update – 15 September 2014

Weaker than expected industrial production data is likely to generate headlines this month. However these results are not as negative as they may seem – reflecting in part the impact of stimulus in Q3 2013.

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Weak industrial data highlights impact of previous stimulus and challenges to 2014 growth

Weaker than expected industrial production data is likely to generate headlines this month. However these results are not as negative as they may seem – reflecting in part the impact of stimulus in Q3 2013. As we have previously noted, this stimulus meant that maintaining China’s growth momentum was likely to be difficult this quarter, and allied with weaker trends in the property market, makes meeting this year’s growth target of 7.5% increasingly difficult.

Industrial Production and Investment

Growth in China’s industrial production slowed significantly in August – with output rising by 6.9% yoy (compared with 9.0% in July). This level was the weakest rate since February 2009 and was well below market expectations – which tipped a modest decline in the growth rate. In part, this weak rate of growth reflects the impact of stimulus that occurred at this time last year.

China’s major manufacturing PMI surveys signalled slightly weaker industrial conditions. The official PMI (produced by the National Bureau of Statistics) edged down – to 51.1 points (from 51.7 previously). The HSBC Markit PMI fell more sharply – down to 50.2 points (from 51.7 points in July) – with this survey more indicative of SME firms.

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