An independent survey of more than 2,000 companies in China pointed to enduring contraction for the industrial sector in the third quarter as overcapacity persisted and rising raw material costs threatened to undermine recovery.
The Cheung Kong Graduate School of Business’s quarterly Report on China’s Industrial Economy indicated that although China’s official growth rate came in ahead of the government’s full-year target in the third quarter, contraction of its industrial sector continued.
The report’s headline business sentiment index came in at 47, up from 46 in the second quarter but still below the 50-point mark that separates growth from contraction.
Professor Gan Jie, who who heads up the survey, wrote that although the industrial economy had shown some signs of recovery, “due to the persistent severity of overcapacity, there is still a need to reduce production capacity. In addition, persistent rises in raw material costs and the resulting price inflation may hinder the recovery of the industrial economy.”
Investment trends exerted a particularly heavy drag on the headline figure, with only 1 per cent of firms surveyed saying they considered it a good time to invest and only 10 per cent actually making any fixed-asset investment during the period. A sub-index tracking FAI came in at 37 for the period.
Overcapacity remained severe, with 59 per cent of firms reporting a lack of orders and 64 per cent reporting oversupply in the domestic market. The share of firms reporting severe excess capacity was 53 per cent in the third quarter, compared to 52 per cent in the previous quarter.
Costs represented the second most prominent issue as raw material and labour costs were cited by 25 per cent and 14 per cent of companies surveyed, respectively.
State-owned enterprises once again expanded, with a sub-index for government-run firms coming in at 55, while a sub-index for their privately-run counterparts came in at 46 for the period, indicating sustained contraction – though this reflected a slight improvement from 45 in the second quarter.