China’s industrial production rose in November
According to the National Bureau of Statistics (or NBS) of China, China’s industrial production grew 6.2% YoY (year-over-year) in November, up from 5.6% in October. The data indicate that the efforts of the Chinese government are bearing some fruit, albeit slowly.
In the first 11 months of 2015, the total value added of the industrial enterprises above designated size was up by 6.1% YoY. Since 2011, enterprises above designated size refers to all industrial enterprises with revenue from the principal business over 5–20 million yuan.
China’s urban fixed-asset investment remained unchanged in November
According to NBS, China’s urban fixed-asset investment rose by 10.2% to 49.7 trillion yuan for the first 11 months of 2011. However, the growth rate in November remained unchanged compared to the first ten months of 2015 from January to October. In November, investments in urban fixed assets increased 0.73% on a month-over-month basis.
Fixed-asset investment is considered a key driver of economic growth. The data indicate that the continued decline in fixed asset investments is due to a slowdown in demand.
Slump in factory output and its consequences
With the current manufacturing slump in China, achieving a gross domestic product (or GDP) growth rate of around 7% in 2015 seems difficult. The sharp fall in commodity prices and the weakness in global demand may result in a slowdown in China’s industrial sector.
The People’s Bank of China (or PBOC) published the 2016 China Macroeconomic Outlook report on December 16, 2015. It said in its report that real GDP growth is expected to be 6.9% in 2015, and real growth for 2016 will be 6.8%.
China is a major revenue driver for multinational companies such as Nike (NKE), General Motors (GM), Ford (F), and Apple (AAPL). With the slowdown in industrial production in China, the revenues of these companies are impacted.
Impact on mutual funds
Among China-focused mutual funds, the Clough China Fund – Class A (CHNAX), the John Hancock Greater China Opportunities Fund – Class A (JCOAX), and the Guinness Atkinson China and Hong Kong Fund (ICHKX) have more than 10.0% exposure to the industrials sector. The slowdown in industrial production would directly impact the performance of the funds.
The Eaton Vance Greater China Growth Fund – Class A (EVCGX) has ~7% weight in the industrials sector. The slowdown in factory output would thus have less of an impact on its overall performance compared to other funds.