uploads///Chinas Industrial Production Remained Steady

China’s Industrial Production Remained Steady in May

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Jun. 21 2016, Published 7:34 a.m. ET

Industrial production in line with expectations

According to China’s NBS (National Bureau of Statistics), industrial production of enterprises above designated size grew by 6.0% YoY (year-over-year) in May 2016. This was the same as the growth rate reported in the previous month. As of 2011, enterprises above designated size are industrial enterprises with revenue of over 20 million yuan from their principal business.

From January to May 2016, the total value added of the industrial enterprises above designated size rose by 5.9% YoY. Meanwhile, on a monthly basis, industrial production increased by 0.45% month-over-month in May. Industrial production accounted for 40.5% of China’s total GDP in 2015, making it one of the leading indicators of economic growth.

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Reasons for stable growth

According to the NBS, growth in industrial production remained steady on the back of improved imports and moderating factory gate inflation. Recovery in the real estate market and an increase in government spending on infrastructure projects provided an additional boost to industrial output. However, declining private sector investment has raised concerns about the medium-term prospects of the country.

According to the NBS, the output of the computer, communication equipment, and other electronic equipment sectors rose by 10.0% YoY in May, and auto manufacturing output rose by 11.2% YoY. Manufacturing output expanded by 7.2% YoY, while mining output decreased by 2.3% YoY in May. Production and distribution of electricity, heating power, gas, and water rose by 2.4% YoY.

Impact on funds

The stability in industrial production and the rise in imports are positive for companies such a Freeport-McMoRan (FCX), Glencore (GLNCY), Alcoa (AA), Taiwan Semiconductor Manufacturing Company (TSM), Sinopec (SNP), and Rio Tinto (RIO), as these factors result in higher revenues for these companies.

Similarly, these factors would be beneficial for 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, which have sizable exposure to the industrial sector.

In the next article in this series, we’ll look at China’s fixed asset investments in May.

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