The third consecutive quarter of falling gross domestic product growth makes it official: China is slowing down. The main culprit for this is fixed-asset investment (FAI), which from June to September grew by 0.4 per cent a month, less than one-third the rate of February to May. If a few FAI cylinders are beginning to sputter, though, three years on from the big post-Lehman stimulus, this is no disaster.
Checking the rapid expansion of real-estate development, which represents about a quarter of FAI (excluding rural households), is the clear priority of economic planners. Transactions are stalling and prices, on balance, are no longer going up. That means that developers may scrabble for funding: note that Hong Kong-listed New World Development launched a huge, pre-emptive rights issue on Tuesday to support existing projects and to top up capital. Railway construction is another intentionally soft spot. The deadly collision in July in Wenzhou has caused 80 per cent of existing high-speed projects to be put on hold, according to Moody’s.
The 35 per cent of FAI represented by capital spending by industry, however, remains resilient (though as China does not publish utilisation data, it is hard to gauge how useful this spending is). Also holding steady is the 20 per cent of FAI in the form of public infrastructure, as rising spending on utilities offsets a fall in transport. Fundamentally, it is this kind of investment – led by automation, upgrades and capacity expansion – that China needs most.