Industrial production weaker than expected
According to the NBS (National Bureau of Statistics), China’s industrial production of enterprises above designated size grew by 6.0% year-over-year (YoY) in April 2016. This was lower than the growth of 6.8% registered in March. Enterprises above designated size refers to all industrial enterprises with revenue of more than 20 million yuan from their principal business.
A rebound in industrial output in March was good for China’s economy and raised the hopes that the economy might make a comeback. However, April’s data proved that the pickup in industrial output was a one-time affair.
From January to April 2016, the total value added of industrial enterprises above designated size rose by 5.8% YoY. On a month-over-month basis, industrial production increased by 0.47% in April. Industrial production accounted for 40.5% of China’s total GDP in 2015, making it one of the leading indicators of economic growth.
Reasons for slower growth
According to the NBS, slower growth in industrial production was mainly due to weak foreign demand, poor performance in the mining industry, rising commodity prices, overcapacity in factories, and seasonal factors.
According to the NBS, the output of high-tech and auto manufacturing rose 8.3% YoY and 12.1% YoY, respectively, in April. Manufacturing output expanded 6.9% YoY in April. Meanwhile, mining output rose marginally by 0.1% YoY. Production and distribution of electricity, heating power, gas, and water saw output increase by 1.9% YoY.
Impact on funds
The slowdown in industrial production is a major concern for companies such a Freeport-McMoRan (FCX), Glencore (GLNCY), Alcoa (AA), Taiwan Semiconductor Manufacturing Company (TSM), China Petroleum and Chemical Corporation (SNP), and Rio Tinto (RIO), as it results in lower revenues for these companies.
Similarly, the performance of funds such as the Oberweis China Opportunities Fund (OBCHX), the Matthews China Fund Investor Class (MCHFX), the iShares China Large-Cap ETF (FXI), and the iShares MSCI Hong Kong ETF (EWH), which invest in some of the above-mentioned companies, could be negatively affected.
In the next part of this series, we’ll look at China’s fixed-asset investment total in April.