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China’s industrial output strong, fixed-asset investment down

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Nov. 20 2019, Updated 1:44 p.m. ET

Industrial production, fixed-asset investment

Industrial output measures the output of businesses involved in the industrial sector of the economy, including manufacturing, mining, and utilities. Fixed-asset investment (or FAI) is a measure of capital spending. It refers to any investment in physical assets such as real estate infrastructure and machinery that are held for more than one year.

FAI is a good indicator of how much investment occurs in a country or region. It’s a closely watched indicator of construction activity in China.

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Industrial production above expectations

According to monthly data released by the National Bureau of Statistics of China, China’s industrial output, also called factory production, grew by 7.9% year-over-year against an expectation of 7.4% year-over-year in December.

FAI slowed down in 2014

Annual growth in China’s urban FAI continued to slow down in 2014 to 15.7%, down from 19.6% in 2013. Growth in the first 11 months of the year was 15.8% compared to 15.7% for the whole year.

National Bureau of Statistics of China data showed that urban fixed-asset investment expanded to 50.2 trillion yuan (about $8.2 trillion) at the end of 2014. Data also showed fixed-asset investment by foreign businesses declined by 0.3% year-on-year in 2014, compared to a 4.5% increase for 2013.

Impact on companies

Industrial production and FAI are barometers of economic health. They’ve slowed due to real estate weakness. More sustained growth needs to be seen before any meaningful positive impact can be expected for industries such as steel, which has a direct impact on iron ore prices.

Iron ore prices affect companies such as Rio Tinto (RIO), BHP Billiton (BHP), Vale S.A. (VALE), and Cliffs Natural Resources (CLF), as well as the SPDR S&P Metals and Mining ETF (XME).

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