Slowdown in Chinese Investment Fuels Fears of Weaker Growth

Slowdown in Chinese investment
Written by Ben Davis

Although much of the economic data coming out of China in recent months has been positive, one weak spot has overshadowed all else: a slowdown in private investment.

Widely cited as a cause of falling share prices, its impact has been felt across the financial markets, with forex traders, spread betters and stockbrokers all watching the outcome unfold with eagle-eyed gazes.

With many experts warning that it could indicate weaker growth for the second quarter than the first, we take a look at what’s really going on…

The Statistics

Over the last few days, several reports have been released, and those attuned to the financial markets have been quick to dissect their implications.

For the most part, the figures contained within have been positive, suggesting areas of real strength in the world’s second-largest economy.

However, it is the bad news that has generated the greatest discussion. Statistics show that fixed-asset investment grew by a lower than expected annual figure of 9.6 per cent in the first five months of the year, compared with a 10.5 per cent rise throughout April.

More worryingly, the reports go on to detail extremely stilted growth in the private investment arena: just 3.9 per cent from January to May, down from an already poor 5.2 per cent between January and April.

The Implications

Figures in themselves rarely spell harm for a nation’s economy; what does the damage is the conclusions drawn from them, and in the case of China’s latest statistics, these implications are rather worrying.

Why? Because the numbers indicate that companies are holding off spending, which suggests that confidence in the country’s future is likely lacking.

The effect of this is worse than the mind-set it symbolises: if the commercial sphere is not spending, it denies the economy a capital source that is often more effective and sustainable than government injections of funds.

The Reasons

According to spokesmen from China’s National Bureau of Statistics, this hesitation to spend stems from overcapacity. With more companies than demand, businesses are finding it increasingly difficult to secure financing, and thus private enterprises are reluctant to invest.

According to expert Sheng Laiyun: “The slowdown in private investment shows that economic growth momentum needs to be strengthened.”

The slowdown in investment may not yet be catastrophic, but it is certainly an area in need of attention. Without the economic growth momentum to support the areas of strength within this leviathan economy, hard days could be ahead for China, and investors must keep a keen eye on the markets to ensure that they’re not dragged down beside it.




About the author

Ben Davis

If hard hitting, factual news is what you are looking for, only Ben Davis has it.

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