Fixed asset investment growth slowed to 1.6% YoY ytd in Jan-Jul, down from 2.8% YoY ytd, and well short of forecasts for a drop to 2.7%. This is the second month of sharp declines in FAI growth, which is relatively rare considering the indicator is reported in year-to-date growth and typically prone to smaller fluctuations. Slowing from 3.7% YoY in the first five months of the year to 1.8% in the first seven months suggests a steep slowdown of investment activity in June and July.
The slowdown of investment growth has been broad-based. Given the slump in property prices, combined with still elevated inventory levels, it’s unsurprising that real estate investment continues to be the biggest drag on investment, down -12.0% YoY ytd. Private FAI has now fallen to -1.5% YoY ytd. This is the steepest decline since pandemic-impacted 2020. Manufacturing FAI, which has been a major outperformer over the last few years amid the hi-tech manufacturing upgrade demand, softened to 6.2% YoY ytd, the lowest level since 2023.
On the brighter side, on an industry level, FAI into auto manufacturing (21.7%), rail, ships, and aeroplane manufacturing (29.3%), and utilities (21.5%) remain at high levels.
Many corporates have been cautious with new investments amid high levels of uncertainty. With many industries also still in overcapacity, US-China trade negotiations apparently favouring short-term extensions rather than a longer-lasting “grand bargain”, and an “anti-involution” push against extreme price competition in progress, investment growth could stay soft for some time.