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Chinese factory output is up an astonishing 35%

Reuters reported output in China was up 35.1% in the January/February period compared to a year earlier. How does this impact the ASX?
The post Chinese factory output is up an astonishing 35% appeared first on The Motley Fool Australia. –

China factory worker giving thumbs up

During an eventful day with many ups and downs, the S&P/ASX 200 Index (ASX: XJO) closed yesterday’s session 0.10% higher. While there are many reasons the index may have inched higher, one reason could be recent economic news coming out of China.

Reuters reported yesterday that industrial output in the People’s Republic was up an enormous 35.1% in the January/February period compared to one year earlier. China aggregates its January/February data to accommodate for Lunar New Year celebrations.

The results beat the median 30% growth figure extracted from a Reuters poll of analysts. In December, output was up 7.3% on the prior year.

It’s not unreasonable to expect the performance of the Chinese economy to have some impact on the ASX. In 2019, 40% of all Australian exports (US$ 103 billion) went to the largest Asian nation.

Signs of recovery in the data

COVID-19’s effects on the Chinese economy were an omen for global capital. The virus, originating in the city of Wuhan in Hubei Province, led to a 6.8% contraction in China’s GDP during Q3 of FY20. The disease spread throughout the world soon after.

Given that, it’s not surprising factory output is now growing at such a tremendous rate. Yet even still, there are signs China’s economy is growing beyond its pre-pandemic levels. Many are attributing this to China’s ability to quickly contain the virus within its borders. Additionally, according to Reuters, the recovery was aided by “robust trade, pent-up demand and government stimulus.”

Compared to January/February 2019, China’s industrial output is still up 16.9%. Reuters is attributing the impressive growth rate to a surge in foreign demand. Within China too, confidence and demand are heading in the right direction.

Retail sales in China were up 33.8% – greater than the 32% figure predicted by analysts. In December, retail sales were up only 4.6% and, in the first two months of 2020, they contracted by 20.5%. Even compared to the beginning of 2019, retail sales were up 6.4%.

Likewise, fixed asset investments are seeing a similar bump. They increased by 35% on 2020. This, however, was below analyst predictions of a 40% jump. Compared to the beginning of 2019, fixed asset investments still grew by 3.5%.

To get even more granular, private-sector fixed asset investments were up 36.4%. Private-sector investment makes up 60% of all investment in the single-party state.

China’s economy was the only major one to record an expansion during 2020. It grew by 2.3%.

How the news might affect ASX-listed companies

Many Australian companies are becoming increasingly reliant on Chinese demand for revenue growth. However, despite the positive news, there are still reasons to temper expectations for Australian shares.

For one, the Chinese government is still placing hefty, retaliatory tariffs on many Australian goods, including wine, beef, and even lobsters. As well, the Australian Government’s imposed international border lockdown is materially affecting companies like A2 Milk Company Ltd (ASX: A2M) and its supplier, Synlait Milk Ltd (ASX: SM1). The dairy producer heavily relies on the daigou market to sell its baby formula.

Despite all the bluster, the Central Committee is yet to place tariffs on the biggest Australian export to its nation – iron ore. Chinese industry is reliant on Australia’s steady supply of quality ore to keep it moving. Massive growth in output and no tariffs may bode well for iron ore exporters like BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO), among others.

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Motley Fool contributor Marc Sidarous has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended A2 Milk. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Chinese factory output is up an astonishing 35% appeared first on The Motley Fool Australia.

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