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China’s Real Estate Climate Index Falls after a Modest Recovery

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Aug. 23 2016, Updated 11:04 a.m. ET

Construction activity

Previously, we noted that China’s (FXI) real estate indicators had fallen over the last couple of months. China’s fixed asset investment, which has been a key pillar of its economy, has also seen falling growth rates.

China’s investment in fixed assets rose by 8.1% YoY (year-over-year) in the first seven months of 2016. The growth rate fell by 0.9% in the first six months. This was slowest growth in China’s fixed asset investment in more than 16 years. Let’s see how falling growth rates are impacting China’s real estate climate index.

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Real estate climate index

China’s real estate climate index is useful for revealing trends in the Chinese real estate industry. Readings of above 100 indicate economic growth, and readings of below 100 indicate a slowdown in China’s real estate market.

The chart above shows the movements in China’s real estate climate index. As you can see, the index has been on a downward trend, hitting multiyear lows late last year. Though there was improvement after that point, the index has now fallen for the last two months. The index read 94.01 in July, down from 94.4 in June. The fall in the real estate climate index is another indication that construction activity has slowed in China.

Note that the demand slowdown in China was as expected. The bigger concern for steelmakers such as U.S. Steel Corporation (X), ArcelorMittal (MT), Steel Dynamics (STLD), and AK Steel (AKS) is the stickiness in Chinese steel production.

In the coming parts of the series, we’ll look at China’s July steel production data. But first, let’s see how’s China’s car sales are progressing this year.

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