The Chinese government responded to the economic downturn caused by the coronavirus mostly by ramping up its investments in infrastructure. The latest data indicate that the industrial activity may accelerate further in the coming months.
Truck sales surged by 65% year-on-year in July, the fastest rate since December 2009. Truck sales is a reliable and useful leading indicator of future activity as firms often expand their fleets ahead of planned increases in output and construction. It shows a high level of correlation with electricity generation and often provides an early warning of an increase in industrial production.
While the latest data suggests that the rebound in industrial activity could be as strong as that in 2009-10, it is unlikely to be so. The rise in fixed asset investments so far this year has been mostly driven by the state; private sector investments remain subdued. Relatively modest growth in credit compared to that after the 2008 Financial Crisis also supports this view.
Nevertheless, industrial activity is expected to accelerate further. Local governments recently ramped up their special bond issuances to fund investment projects and used up about 60% of their annual quota by the end of last month. According to recent Ministry of Finance directives, local governments will need to complete most of their funding by the end of October. That implies a sharp rise in bond issuance and investments in the coming months/quarters.
Source:Arrow
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