China fixed asset investment by sector, 2012-2015
Throughout 2015 there has been a growing divergence between the various forms of construction investment in China, as illustrated above. Mark Evans, an analyst in Emerging Market Fixed Income, notes that “although state-driven FAI in infrastructure remains robust and will likely remain so under the new five year plan, in other areas, such as real estate and manufacturing, FAI continues to slow.” Evans notes that the divergence between investment in infrastructure and other capital-intensive industries marks a breakdown in historical correlation between FAI in the three sectors. He believes that this trend will continue over the medium-to-long term as over-capacity in many manufacturing industries and excess inventory levels in residential real estate for smaller cities and commercial property continue to be worked through.
As China continues to rebalance its economy towards services, watch for the continuing decoupling of FAI as real estate and manufacturing slow, but the government continues to support infrastructure spending under China’s thirteenth five-year plan.