标题: UBS China Question of the Week - Why Is IP Growth Falling Sharply? [打印本页] 作者: yangruoxin 时间: 2008-11-14 09:16 标题: UBS China Question of the Week - Why Is IP Growth Falling Sharply?
October industrial value added grew by only 8.2% y/y, the slowest pace since mid 2001 and far below market consensus. Why is China's industrial production decelerating so suddenly?
Our Answer - Given what has been happening in global financial market and the sudden drop in economic activity in developed economies, it has been suggested that China has been hit hard by this financial crisis. Actually, data suggest that it is China's domestic demand that is weakening much quicker than its exports and [the domestic weakness] has led to the slowdown in IP growth. Export-related slowdown is still in the pipeline. - What led the decline in the growth of industrial production has been the drop in iron and steel production (Chart 1), which saw a sharper decline in production than the previous slump of 1997/98. The slowdown in energy-intensive sectors such as iron and steel has also led to a steep deceleration in the power sector. This has caused many who assume a fixed relationship between electricity consumption and GDP growth to question the accuracy of overall growth data, while we think the uneven slowdown in the economy has suddenly reduced the energy intensiveness of growth. - The weakness in housing related construction activity is by far the most important driver for decelerating domestic demand, especially that for steel, cement, consumer durables, and other related products (Chart 2). With housing sales and new constructions now declining, we see a further drop in domestic consumption of steel and related products and, therefore, more downside in production in these industries. An unusually high accumulation of inventories in some sectors (iron and steel again) has exacerbated the downward adjustment in production. - The latest trade data also corroborate the view that exports are holding up better than domestic demand, despite a global downturn. While real export growth continues to grind down, real import growth collapsed in October (Chart 3) and, together with a sharp fall in import prices, this resulted in the largest monthly trade surplus in China's history - $35.2 billion. - Looking forward, however, export growth looks set to decelerate sharply, and we can already detect this trend from both the weak electronics production (Chart 1) and sharply falling export orders (Chart 4). Actually, domestic new orders and export orders are both falling in tandem, which does not bode well for industrial production in the coming months. Even though the government's fiscal and monetary stimulus could start to kick in as early as Q4 2008, the downward pressures from weakening domestic and external demand will likely dominate in the near term, leading to slower IP growth in the coming month. [attach]9610[/attach]
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