Real estate further cooling the economy

CHINA - Report 29 Nov 2021 by FAN Gang and Chunyang Wang

The Chinese economy faced more downward pressure in October. Industrial output was up 3.5% y/y, down 1.4 pps from Q3. Investment was also weak, with investment growth falling to 8% y/y in the January-October period. The adjusted monthly growth rate should be negative for September and October.

Retail sales of social consumption goods were up 4.9% y/y, and increased 1.9% y/y in real terms. Both figures are much lower than their pre-pandemic growth rates, such as in 2019. Exports in October rose 20.3% y/y, up 5.8 pps from Q3, recovering to the growth rate of Q2. Imports rose 14.5% y/y, down 1.7 pps from Q3. The stronger export performance is mainly due to domestic economic slowdown.

Producer prices might be peaking. In October, the ex-factory price index of industrial goods rose 13.5% y/y, while PPI rose increased 17.1% y/y. The price boom usually indicates the end of this round of price appreciation. High frequency data also shows that most industrial goods prices have been falling since November. In October, CPI increased 1.5% y/y, up 0.8 pps from September, reaching its highest growth rate this year.

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