The FTCR China Business Activity Index, a composite reading of the month-on-month change in activity in the real estate, export and freight sectors, fell to a 10-month low in November.
The index dropped to 47.8 from 50 in October, below last November’s 48.6. Our BAI readings have always fallen sequentially in November but this is the weakest reading for the month.
Of the index’s three components, only freight improved in November, rising to a two-year high of 53.6. The export index indicated improvement in sectoral conditions for a fifth straight month, though it slipped slightly month-on-month. The headline index fell to 54.6 from 57.1
However, the main drag on the BAI in November was again real estate, as local and central authorities continued to clamp down on overheating housing markets. This was more than a seasonal dip in activity: our Real Estate index fell to 38.9 from 46 in October and 71.5 in September.
This latest BAI reading highlights the broad impact of a slowing housing market. Recent months of improving freight and export conditions may not be sustainable given the centrality of the housing market to the Chinese economy.
We believe that government policy easing at the start of 2016 has secured annual growth targets, but the outlook for next year has become foggier given the uncertainty surrounding how far the authorities are willing to go to rein in the housing market’s speculative excesses. Given these known unknowns, we expect the real estate component to continue to largely dictate the movement of the headline BAI figure in the months ahead.
FT Confidential Research is an independent research service from the Financial Times, providing in-depth analysis of and statistical insight into China and Southeast Asia. Our team of researchers in these key markets combine findings from our proprietary surveys with on-the-ground research to provide predictive analysis for investors.