China ‘yet to hit bottom’ as economic downturn plumbed new depths in October

October’s data has dashed the hope that the worst is behind the Chinese economy, with analysts suggesting tougher times lie ahead

Trade war with the US is a major impediment to investment and manufacturing, with ‘phase one’ deal offering no more than ‘optimism’

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Smoke billows from a factory on the outskirts of Shenyang, northeast China's Liaoning province. Photo: Reuters

Published: 7:00pm, 14 Nov 2019Updated: 11:53pm, 14 Nov 2019

The hope that China’s economy had put the worst behind it was dashed on Thursday by a series of disappointing economic figures that rounded off a miserable week for policymakers in Beijing.

Green shoots that appeared last week in the form of lower-than-expected export and import falls, along with a positive survey of small manufacturers, have been supplanted by official numbers that show the depth of problems facing the world’s second largest economy.

Fixed asset investment in China – that is, the value of spending on real estate, infrastructure and capital equipment – grew by just 5.2 per cent in October, the lowest monthly expansion on record, suggesting that businesses are wary of investing in expensive projects and premises at a time of such great uncertainty.

The trade war with the United States is now in its 17th month and economists have long insisted that the main impact has been on business sentiment. October’s data suggests that this is occurring, but a granular look at the numbers show there is a more direct impact too. Investment in manufacturing was lower than any other sector.

“Manufacturing investment is driven by exports and property investment is by policy. In the near term, neither is likely to rebound meaningfully. Therefore, the extra boost [that stopped the number from slowing further still] has to come from infrastructure spending,” said Larry Hu, chief China economist at Macquarie.

Investment in infrastructure in October – measured year-to-date – was 4.2 per cent, down from 4.5 per cent in September. Beijing continued this week to take incremental steps to help boost infrastructure spending by cutting the minimum capital ratio requirement for some local government projects to 20 per cent from 25 per cent.

Manufacturing investment is driven by exports and property investment is by policy. In the near term, neither is likely to rebound meaningfully

Larry Hu