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Why the Surge in China’s Fixed Asset Investments?

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Mar. 16 2016, Updated 9:04 a.m. ET

China’s fixed asset investments rose 10.2% YoY

Data for China’s fixed asset investments in January and February 2016 were released by the National Bureau of Statistics of China over the weekend. According to the data, fixed asset investments witnessed a growth of 10.2% year-over-year (or YoY). The total value of fixed asset investments for the first two months of the year came in at 3.8 trillion yuan, which is equivalent to $580 billion.

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Breakdown of fixed asset investment data

China’s fixed-asset investments for January and February 2016 in the service sector rose 11.1%. Investments in the agriculture sector rose 34.3%. A surge of 7.9% in fixed asset investments was seen in the industry sector. Breaking this down regionally, fixed asset investments in the western, central, and eastern regions rose 12.7%, 12.5%, and 9.7%, respectively. In contrast, fixed asset investments in the northeast region disappointed with a decline of 18.6%. Last year, it declined 11.2%.

Foreign investments and funding Growth

In the first two months of 2016, investments by foreign companies increased 6% compared to the same period in 2015. Last year, investments from foreign companies declined 2.8%. Funding growth for fixed asset investments increased 0.9% to 5.9 trillion yuan. This is a sharp decline from the 7.7% increase in 2015. Of these funds, the government budget increased 10.9%.

Fixed asset investments are used to build and purchase property, machinery, factories, and other fixed facilities. These are the key drivers of China’s economic growth. The growth of 10.2% in the first two months of 2016 ended several consecutive months of decline and was better than Market expectations.

Chinese economic data are important for base metals and can support copper prices. They could also impact the prices of major base metal miners and ETFs such as BHP Billiton (BHP), Freeport-McMoRan (FCX), Glencore (GLNCY), Rio Tinto (RIO), and the PowerShares DB Base Metals Fund (DBB).

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