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China’s Industrial Production Jumps: Which Companies Benefit?

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Apr. 20 2016, Updated 8:07 a.m. ET

Industrial production jumps

According to the NBS (National Bureau of Statistics of China), the production of industrial enterprises above designated size grew by 6.8% YoY (year-over-year) in March 2016. Enterprises above designated size are industrial enterprises with revenues of over 20 million yuan from their principal business.

In 1Q16, China’s industrial production rose 5.8% YoY, up from the 5.4% increase seen in January and February 2016. Industrial production increased by 0.64% between February and March.

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Industrial production accounted for 40.5% of China’s total GDP in 2015, making it one of the leading indicators of economic growth. According to the NBS, the output of the high tech and equipment manufacturing industries rose by 9.2% and 7.5%, respectively, in 1Q16. Manufacturing output expanded 6.5%, up from 6.0% in the first two months of the quarter, and mining output rose to 2.1% from 1.5%. Meanwhile, the output of the electricity, heating, gas, and water sectors rose by 2.6%.

With the implementation of stimulus reforms, China’s industrial sector is picking up, which indicates that the Chinese economy is rebounding and local demand is growing. Although China’s GDP grew by only 6.7% in 1Q16 after growing by 6.8% in the previous quarter, several key indicators suggest that the Chinese economy is stabilizing.

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Urban fixed-asset investments

According to the NBS, China’s urban fixed-asset investments grew by 10.7% in the first quarter of 2016, slightly higher than the 10.2% seen in the first two months of 2016. Fixed-asset investments are considered a key driver of economic growth. The data indicates that China’s real estate investments grew due to rising home sales.

Impact on mutual funds

The rise in industrial production and fixed-asset investments is positive and would boost revenues for companies such as Freeport-McMoRan (FCX), Glencore (GLNCY), Alcoa (AA), Taiwan Semiconductor Manufacturing Company (TSM), Sinopec (SNP), and Rio Tinto (RIO).

Similarly, the Oberweis China Opportunities Fund (OBCHX), the Matthews China Fund Investor Class (MCHFX), and the Guinness Atkinson China and Hong Kong Fund (ICHKX) each have more than 10% exposure to the industrial sector and stand to gain in the medium term. In the next part of this series, we’ll discuss China’s retail sales data.

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