China’s Economy：Rising Infrastructure Investment Prompted the Economy to Stabilize;Weak Property Investment is Still a Drag

12 December 2015 Please read the "Special Disclaimer" Section on the last page - 1 - Securities Research Report China’s Economy Rising Infrastructure Investment Prompted the Economy to Stabilize; Weak Property Investment is Still a Drag - Comment on November Real Economic Data Data Commentary ◆ Both production and demand showed signs of stabilization. November real economic data released today by the statistics bureau showed that year-on-year growth in industrial value-added picked up again from 5.6% in October to 6.2% in November, higher than our (5.7%) and market (5.6%) forecast (Figure 1, Table 1). Demand also improved on growth-stabilizing policies. Fixed-asset investment growth rate for the first 11 months was the same as that for the first 10 months at 10.2%, in line with our and market expectations (Table 1), while the year-on-year growth rate for November alone continued to rise 1.5ppts to 10.8%. Year-on-year growth in total retail sales was up 0.2ppt to 11.2%, boosted by the "11.11 Shopping Festival". Given continued introduction of more growth-stabilizing policies, both production and demand stabilized. ◆ Liquidity in the real economy continued to improve; investment growth picked up, driven by rising infrastructure investment. Growth in the source of fixed-asset investment continued to rise; year-on-year growth in funds actually in place jumped 3.3ppts to 14.6% in November from October; year-on-year growth in fixed-asset investment was up 1.5ppts to 10.8% in the month. Growth in the source of funds was substantially higher than growth in investment, suggesting the liquidity in the real economy remained loose. By sector, the increase in investment growth was mainly driven by substantially rising infrastructure investment. Infrastructure investment growth stopped declining and rose substantially in November, with monthly year-on-year growth picking up from 12.9% in October to 23.2% in November. The willingness to invest in the real economy also improved to some degree. Of the source of funds for fixed-asset investment, the year-on-year growth in self-raised funds rose from 11.3% in October to 14.6% in November. However, the stabilization in investment was not stable. With the continued introduction of more accommodative monetary policies across the board, the improvement in the liquidity in the real economy will prompt investment to keep stabilizing and pick up. ◆ Weak property investment still weighs on the stabilization of the economy. Unlike rising infrastructure investment, property investment declines became even steeper. Decline in November was 2.7ppts bigger than that in October. High inventories continued to weigh on property investment. In November, the area of commercial housing under construction was 5.7 times the area of commercial housing sold in the past one year. The property market was still at the de-stocking process. Particularly, inventory pressures were high at some of the third- and fourth-tier cities. Housing demand continued to pick up. Despite a relatively high base last year, the year-on-year growth in the area of property sold continued to rise 3.1ppts to 8.6% in November. Accommodative policies are set to continue to push up housing demand growth. There were also some improvements in the willingness of property developers to invest. The year-on-year growth in the source of funds for property investment rose 6.2ppts to 11.4% in November. Specifically, the year-on-year growth rate in the self-raised funds increased from -9.5% a month ago to 2.5% in November. Analyst: Gao Xu 010-58452002 gaoxu@ebscn.com Practice License Number: S0930512080004 Contact Person: Yewei Yang 010-58452024 yangyewei@ebscn.com Watch Everbright Macro Grasp the economic pulse 2015-12-12 Macro Commentary Please read the "Special Disclaimer" Section on the last page - 2 - Securities Research Report Though de-stocking pressures will continue to exist, property demand is set to keep rebounding under accommodative policies. The improvements in liquidity and the willingness to invest will prompt property investment to stabilize and rebound. ◆ Production stabilized. The year-on-year growth in industrial value-added continued to pick up in November and was up 0.6ppt to 6.2% from a month ago. A relatively low base last year was one of the reasons for the increased growth in industrial value-added. In November 2014, the year-on-year growth in industrial value-added fell 0.5ppt to 7.2% from a month ago. Even if the base factor is excluded, industrial value-added growth