Deutsche Bank-China Macro 10 charts on China’s industrial overcapacity-107776132

DDeeuutstcshcehBeaBnkankResearch ChinaMacro 10chartsonChina’sindustrial overcapacity Distributedon:24/04/202404:54:06GMT YiXiong,PhDDeyunOu Chiefeconomist,ChinaResearchAssociate +85222036139 DeutscheBankYiXiong,PhD Research(+852)22036139|yi.xiong@db.com April2024 IMPORTANTRESEARCHDISCLOSURESANDANALYSTCERTIFICATIONSLOCATEDINAPPENDIX1.MCI(P)097/10/2022.UNTIL19thMARCH2021INCOMPLETEDISCLOSUREINFORMATIONMAYHAVEBEENDISPLAYE7DT,2PLsEeA3SrE0SOEEt6AkPPwEoNDPIaX1FORFURTHERDETAILS. 1.China’sindustrialcapacityutilizationratehasdeclinedsince2021,whilepriceshavedroppedsince2022.ThishasledtorenewedfocusonwhetherexcesscapacityisbuildingupagaininChina. 2020=100 120 110 100 China:industrialcapacityutilizationandproducerprices Industrialcapacityutilizationrate,s.a(rhs) 2017-19: Supply-sidereforms 2014-16: Excesscapacity 2022-23: Excesscapacitybuildingupagain? 2020-21: Coviddisruptions Producerpricesindex,s.a.% 79 77 75 73 71 90 69 8067 201320142015201620172018201920202021202220232024 Source:DeutscheBankResearch,NBS,HaverAnalytics,WIND 2.Capacityutilizationwasunevenacrossindustries.In2023,almosthalfofallindustries’capacityutilizationratewerestillatorabovetheaveragelevelin2017-19.Meanwhile,afewindustries’capacityutilizationratehasdroppedtonearorevenbelowtheaveragelevel2014-16,whenChinahadexcesscapacityissues. 2014-16avg.2017-19avg. 92 84 80 79 78 78 77 76 76 75 75 75 74 73 70 65 CapacityUtilizationratebyindustry,2023 OilandGasChemicalFiberNonferrousMetalsUniversalEquipmentFerrousMetalsSpecialEquipmentElectricMachinery TextileComputer&Electronics ChemicalsPharmaceuticalsAutomobile CoalElectricity,Water&Gas FoodNonmetalMineral 636567697173 75777981838587 Source:DeutscheBankResearch,NBS,HaverAnalytics,WIND 3.Threeindustries(computer&electronics,nonmetalminerals,andautomobiles)sawpricesdroppingtobelowpre-Covidlevels.Theircapacityutilizationareallat75%orbelowin2023.Mostindustriessawmildpricehikes,whileafewindustrieswithhighcapacityutilization(>80%)sawlargerpricehikes. Capacityutilizationandpricechanges %changeinproducerpricesfromQ42019 CoalMining NonferrousMetals OilandGas AllIndustriesFood Automobile ChemicalFiber NonmetallicMineralComputer& Electronics Pricesdroppedduring2020-23 40 30 20 10 0 -10 -20 6065707580859095 Capacityutilizationrate,2023 Source:DeutscheBankResearch,NBS,HaverAnalytics,WIND 4.Capacityutilizationratesinthese3industriesarealsolowertodaycomparedwith2016whenChina’scapacityutilizationwasatatrough.Butformostindustries,capacityutilizationishighertodaythanin2016,thankstothegovernment’ssupplysidereforms. Capacityutilizationrate:2023comparedwith2016 10 8 2023comparedto2016 6SpecialEquipment 4Electricity,Water& Universal EquipmentFerrousMetals NonferrousMetals PetroleumandNaturalGasExtraction Gas 2 Chemicals 0 AllIndustriesTextile ChemicalFiber PharmaceuticalsElectricMachineryandEquipment -2Computer& Food -4 NonmetallicMineral Electronics Automobile -6Capacityutilizationdroppedduring2020-23 646974798489 Capacityutilizationrate,2023 Source:DeutscheBankResearch,NBS,HaverAnalytics,WIND 5.Infact,thedropincapacityutilizationinthese3industriescanalmostfullyexplainwhyChina’scapacityutilizationrateislowertodaycomparedwith2017-19.Outsidethese3industries,theindustrialcapacityutilizationratehasbeenbroadlystable. Capacityutilizationrateby2groups Capacityutilizationrate Automobile,electronics,andnonmetalminerals(avg) Otherindustries(avg) 85 80 75 70 65 60 Dec-16Dec-17Dec-18Dec-19Dec-20Dec-21Dec-22Dec-23 Source:DeutscheBankResearch,NBS,HaverAnalytics,WIND 6.The3industriesalsosawfasterinventorybuild-up,especiallyin2021-2022.Interestingly,theyhavedestockedin2023,whichmayhavefurtherdepressedcapacityutilization.Meanwhile,otherindustriescontinuedtobuildupinventoriesin2023,albeitataslowerpacethanin2021-22. Inventorybyindustry Jan2015=100 230 210 190 170 150 130 110 90 Automobile,electronicsandnonmetalminerals(avg)Otherindustries(avg) '15'16'17'18'19'20'21'22'23'24 Source:DeutscheBankResearch,NBS,HaverAnalytics,WIND 7.Inbothnonmetalmineralsandcomputer&electronicsindustries,capacityutilizationdroppedwhenproductionalsoslowed,suggestingdemandslowdownwasanimportantdriver.Theautoindustry,however,isdifferent:capacityutilizationdroppedwhenproductiongrowthsurged. Capacityutilizationandproductiongrowth 18Industrialproduction,%YoY16 14 12 10 8 6 4Nonmetal 2minerals 02023 -2 2018 Automobile2023 Computer&Electronics2023 2018 2018 606570758085 Source:DeutscheBankResearch,NBS,HaverAnalytics,WIND 8.ExcesscapacityinthenonmetalmineralsindustryisprimarilyaresultofChina’spropertysectordownturn.Aspropertyinvestmentcontracted,domesticdemandforcementandotherconstructionmaterialsdroppedsharply. Nonmetalmineralandpropertyinvestment Realestateinvestment,rhs %Capacityutilizationrate:Nonmetallicmineral75 73 71 69 67 65 63 61 59 57 55 %YoY 30 25 20 15 10 5 0 -5 -10 -15 '17'18'19'20'21'22'23'24 Source:DeutscheBankResearch,NBS,HaverAnalytics,WIND 9.Meanwhile,theelectronicsindustryislargelyanexternaldemandstory.China’sexportssurgedin2020-21asC