China's Private Investment Picking Up

Our friend Andy Rothman from research firm CLSA sent out an interesting chart last week following the release of China’s macroeconomic data for the month of September.

As you can see from the chart, private investment (Non State-Owned Enterprises) growth accelerated to 37 percent on a year-over-year basis, a more rapid rate than that of state-owned enterprises. This is the first time we’ve seen this happen since October of last year and it is the fastest rate of growth since November 2007.

A more confident private sector should not only make China’s ongoing recovery more sustainable in a time of diminishing government-mandated stimulus, but also facilitate the structural transition of the Chinese economy toward private consumption.

The private investment revival is largely driven by the real estate sector, which has seen inventory levels drop in major cities like Beijing and Shanghai. CLSA’s on the ground survey revealed that 50 percent of middle-class families surveyed said they were considering buying an apartment.

Activity has also picked up in the business sector. Out of more than 100 small- to medium-sized enterprises surveyed, 32 percent added staff during this past quarter and more than that expected to do so this quarter. Even more telling is that more than two-thirds of the small- to medium-sized enterprises expect the business environment to improve over the next six months.

It’s still too early to call but this could mark a shift in China in which the government’s economic assistance is reduced and economic growth is sustained by the private sector.

Comments

[Fibozachi:]

Have enjoyed your work at US Global for years Frank, from reading your weeklies to listening on your quarterlies, at one point we represented clients owning over 1.1% of GROW's float and, like many other advisors, always wished that you guys would affiliate and offer an advisor series.

Appreciate you sharing your insight today and do not dispute the validity of the end number presented but must point out a gaping hole that lies at the very crux of the issue: the fact, that the state itself has forced the spigot of liquidity to flow through a middle-man. When a lowly Chinese bank rep is tasked with 'X' amount of loans to originate in any given month, he does not discriminate; much like 2006 in the US, he won't be there when the note implodes within 2-3 years. Moreover, as you both highlight and underscore, the vast majority of such private investment lies within the urban RE sector.

If asked about what y/o/y and q/o/q commercial lease rates per square foot in Guangzhou looked like, would they be comparable? Would industrial occupancy and utilization run rates in Guiyang even be positive during this same period? And finally, should expectations for widespread inflationary pressures not only fail to materialize but in fact prove to be misguided, what effects would that have on what appears to be a rather ebullient social mood?

Oct 30 08:03 AM

[bluesky123:]

and 2 days after you wrote this article the China government launches 20 VC funds across the country, funds them with $1.3billion and starts cranking up their jobs and innovation engine. We throw the tax payer money out the window because nobody in Washington (in either political party) has any brains how to create permanent new jobs.

www.chinadaily.com.cn/...

Oct 31 06:10 AM