Sharp slowdown in Chinese investment growth

Growth in private investment, which accounts for over 60 % of all Chinese investment, has slowed sharply since the second half of 2015. Private investment last month dipped below the July 2015 level. The pace of public investment also slowed sharply in July compared to the first half of the year. Consequently, real growth in fixed asset investment (FAI) fell below 5 % y-o-y last month.

FAI figures reported on a monthly basis do not correspond directly to the quarterly national accounting figures for fixed capital formation. However, also real growth in capital formation fell to just over 5 % in the first half (down from over 6 % growth in 1H15). Capital formation represented 45 % of total demand last year, highlighting the potentially significant impact of shrinking investment on GDP growth. Domestic consumer demand, in turn, becomes much more critical than earlier in sustaining rapid growth.

July output growth slowed slightly from June. Industrial output grew 6 % y-o-y, while growth in retail sales, which reflects both service sector and consumption activity, fell to slightly below 10 % in real terms.