China's industrial sector is currently navigating a landscape of mixed signals, with recent reports highlighting a modest increase in industrial output amidst concerns about sluggish economic growth. According to data released by the National Bureau of Statistics (NBS), China's industrial output rose by 5.1% year-over-year in July.
While this figure demonstrates growth, it reflects a deceleration from the 5.3% increase observed in June, suggesting that the economic momentum may be faltering. This cautious outlook is underscored by a 0.35% increase in industrial output from June to July, providing further evidence of a slowing economic engine. Breaking down the various sectors contributing to this output, the NBS noted that the mining industry's added value rose by 4.6% year-over-year in July.
Meanwhile, manufacturing output grew by 5.3%, while the production and supply of electricity, heat, gas, and water increased by 4%. These figures, however, only capture the performance of enterprises with a business turnover exceeding 20 million yuan (approximately $2.8 million), which implies that smaller manufacturers are excluded from this analysis, potentially skewing the overall perspective of industrial health. The manufacturing sector's struggles are accentuated by external pressures, with sluggish export performance cited as a contributing factor to the July figures.
Macquarie, an Australian financial firm, highlighted the challenges facing China's industrial output, particularly in the realm of solar panel and auto production. Specifically, solar panel production experienced a year-over-year decline of 1% in July after a robust growth of 18% in the first half of the year.
Furthermore, automobile manufacturing faced a decline of 2% year-over-year, marking its first downturn since August of the previous year. Adding to the hurdles, the turbulence within China's property sector has begun to exert a negative influence on industrial production. Macquarie reported notable declines in related sectors, with cement production down 12% year-over-year, and crude steel production down 9% within the same timeframe.
Such figures suggest a broader economic malaise that could impede the overall recovery of industrial output in China. A concerning trend is also evident in the investment landscape, as manufacturing investments are reportedly slowing. Macquarie explained that factors such as over-capacity and waning external demand have caused investments in manufacturing to decelerate to an 8% increase year-over-year in July, a sharp decrease from the 9% recorded in the previous quarter and down from 10% during the first quarter of the year. Nevertheless, not all indicators are grim.
The production of new energy vehicles, predominantly electric vehicles (EVs), revealed a substantial surge of 27.8% year-over-year in July, signaling a bright spot within the otherwise struggling industrial environment. The dual crises of a weakening property market and slowing industrial output present a significant challenge for China's economic leadership.
According to Macquarie, new home sales plummeted by 15% year-over-year in volume and by 19% in value in July, despite historically low mortgage rates. Furthermore, property investment experienced an 11% year-over-year decline, with new construction starts and completions reflecting even steeper drops of 20% and 22% year-over-year, respectively. In light of these findings, there are growing expectations that China’s leadership and the People's Bank of China may introduce additional policy measures aimed at stabilizing the economy, as they grapple with the ongoing difficulties within the property sector and the resultant impact on industrial performance.
The potential for policy interventions may play a crucial role in mitigating some of the adverse effects currently facing China’s industrial landscape..