In amongst the unremarkable, so-so May data coming out of China, one big shocker stands out: a substantial pullback in infrastructure investment growth that more than wiped out the delicate green shoots of faster spending in the broader industrial sector.
That, along with confirmation in the latest data that money going into real estate development slowed for the first time since November, indicates Beijing’s hard-nosed determination to cure ills in its non-bank financial system – through higher money market funding rates – could result in a dampening effect on overall growth in the coming six months.
That said, unless they are jolted by a major shock – such as a confidence run on the housing market or a collapse in energy prices – policymakers will likely be able to keep the impacts of their lurch towards monetary policy caution well within a tolerable range.
One clear sign of that is the fact that market supply and demand within the domestic economy remain strong, with industrial output and retail sales growth rates maintaining April’s pace during May. Even taking into account higher consumer prices, which gave a marginal boost to nominal consumption, fluctuations, adjusted for inflation, remain minor.
Infrastructure investment, which accounts for over a fifth of all capital expenditure in the economy and had taken on an outsized role in stabilizing fixed asset investments since early 2016, is now quickly losing momentum.
The year-to-date spending growth rate for the segment plunged by 2.4 percentage points to just 20.9% in May. That is significantly weaker than the heady 27.3% rise at the turn of the year.
May’s slowdown in infrastructure development growth was responsible for the bulk of – if not all of – the pullback in headline fixed-asset investment, which dipped by more than expected to 8.6% during the first five months of 2017 from its previous reading of 8.9%.
That drag overshadows the marginal 0.1 percentage point acceleration in secondary sector FAI growth to 3.6%, driven by a modest pickup in the vast industrial segment, which is almost all related to high-tech manufacturing.
The current cycle of accelerating real estate development since the beginning of 2016 is peaking out, following a shift in housing market policy since last October and a substantial decline in funding of mortgages by banks in recent months.
Growth in real estate investment came in at just 8.8% for the first five months, which marks the first slowdown this year after a steady climb earlier that hit a two-year high of 9.3% in April.
Developers are scaling back on land purchases at a time when their funding supply appears to be drying up. For the first five months, total land purchases were up only 5.3% from a year ago, down from gaining 8.1% in the January to April period.
Funding sources, notably domestic loans and foreign capital, are beginning to become more difficult to obtain, according to data released by the National Bureau of Statistics on Wednesday.
Similarly, a tightening of credit is also weighing on prospective home buyers and the resulting sales figures. Growth rates for value and total area sold both slumped to an 11-month low in May, dropping to 18.6% and 14.3%, respectively.