China has released its May data and the news is boom! Not. The data is so distorted by COVD base effects that it’s still very difficult to read. Simple year-on-year and year-to-date comparisons looks outrageously good. Year-to-date growth to the end of May is 17.8% for industrial production, 25.7% for fixed asset investment and 15.4% for retail sales:
But if we use 2019 comparisons, the year-to-date numbers fall very heavily to 4.2% for fixed-asset investment, industrial production 7% and retail sales of 4.3%.
Turning to segments, the all-important real state continues its slowing trends. Sales are still strong but growth is falling fast:
The dislocation to starts continues under pressure from the “three red lines” policy. Floor area starts were down 6.1% year on year:
Year-to-date floor area starts are still up 6.9% but will likely fall negative in June or July. Here’s my best guess for the 2021 outlook for the flow of starts based upon credit trends:
This crossover point is not a bad estimate for when commodity demand begins to fall from the real estate sector. Infrastructure also slowed to zero growth year on year for May versus 5.4% in April so that peak appears near as well.
There are other useful hints that the pig in the python thesis is playing out as expected. The leading indicators for construction, land purchase area and price, are both down smartly. And completions are lifting very strongly:
Overall, fixed asset investment is swinging from public to private but all of these numbers are distorted by base effects. The 4.2% total versus 2019 is pretty subdued capex:
Moving to industrial production, steel output set another record at 99.45mt. But the rate of growth versus 2020 is falling away fast. I expect that by year-end it will be flat or falling:
Scrap input fell back marginally:
Cement printed another boom month but missed last year’s catch-up peak:
The broader mix is mostly about rebalancing away from construction as well:
No doubt about it. It’s a year-on-year boom in China. But over two years it is weak growth and the slowdown is coming at pace.
This is all supportive of my negative stance on commodities.