Industrial production slips
China’s industrial production grew 5.6% year-over-year (or YoY) in October 2015. It was the slowest pace since April 2015, which points out lower capacity utilization in the industrial sector due to weak demand from local and foreign consumers. In the first ten months of 2015, the total value added of industrial enterprises was up 6.1% YoY.
China’s urban fixed asset investment
According to the National Bureau of Statistics of China, China’s urban fixed-asset investment rose by 10.2% to 44.7 trillion yuan for the first ten months of 2015. However, the growth rate was lower in October compared to 10.3% recorded in first nine months, from January to September 2015.
Fixed-asset investment is considered a key driver of economic growth. The data clearly indicate that the Chinese economy is cooling down.
Slump in factory output and its consequences
With the current manufacturing slump in China’s industrial production, achieving a GDP (gross domestic product) growth rate of around 7% in 2015 seems difficult. China is aiming at a growth rate of around 6.5% for the next five years instead of a higher rate. This indicates that a slowdown in the Chinese manufacturing sector may continue for some time.
China is a major revenue driver for multinational companies such as Ford (F), General Motors (GM), Nike (NKE), and Apple (AAPL). With China’s slowdown in industrial production, these companies are seeing their revenues decline.
Impact on mutual funds
China-focused mutual funds such as the Clough China Class A Fund (CHNAX), the John Hancock Greater China Opportunities Class A Fund (JCOAX), and the Guinness Atkinson China & Hong Kong Fund (ICHKX) have more than 10.0% exposure to the industrials sector. The slowdown in industrial production could directly impact the performance these funds.