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2.2 Fixed Asset Investment Growth Fell Sharply, but the Investment Structure Started to Improve

In 2014, the manufacturing industry has continued its fall since 2010. Meanwhile, the years of fever in the real estate market started to cool. The beginning of the second quarter saw a drop in real estate sales growth and rise in real estate inventory. A substantial part of the urban real estate market showed a “decreasing housing price and decreasing sales volume” trend, directly inhibiting the growth of investment in the real estate industry.[1] The manufacturing and real estate investment growth showed a sharp fall, leading to a corresponding sharp decline in growth of the total social fixed asset investment (Fig. 2.4). The full-year growth in manufacturing investment in 2014 was only 13.1 %, a decrease of 5.5 percentage points from the previous year; this accounted for 33.3 % of the total investment, a decrease of 0.6 percentage points from the previous year. Real estate investment grew by 11.1 %, a sharp decrease of 9.1 percentage points from the previous year; this accounted for 24.6 % of the total investment, a decrease of 1 percentage point from the previous year. In order to stabilize investment, infrastructure construction investment continued to maintain rapid growth; its annual growth reached 19.8 %,[2] a fall by just 1.5 percentage points from the previous year. This accounted for 22.3 % of the total investment, an increase of 0.8 percentage points over the previous year.

Fig. 2.4 Changes in growth rate of investment in fixed assets by industry (Data source: CEIC)

Fig. 2.5 Changes in growth rate and proportion of investment in private fixed assets (Data source: CEIC)

In terms of investment source, to begin with, in 2014, investment in domestic enterprises grew by 16.3 %, a decrease of 4.2 percentage points from the previous year. Among this, the state-owned and state-holding enterprises investment grew by

13.0 %, a decrease of 2.6 percentage points from the previous year, and private investment grew by 18.1 %, a decrease of 5 percentage points from the previous year. Although private investment growth still showed a decline, since 2012, the private fixed investment growth was always faster than the total fixed asset investment growth (see Fig. 2.5). In 2014, the proportion of private investment in the total fixed assets investment increased to 64.1 %, an increase of 1.2 % over the previous year. Private investment is the main source of growth of investment in fixed assets for stable economic growth. As the market environment changed, the economic restructure and the structure of private investment gradually started to adjust: the proportion of investment in the primary and tertiary industry increased, and the structure of investment in the secondary industry also started to adjust. Among this, investment in mining grew by 2.3 %, a decrease of 9 % from the previous year, and 18.1 % lower than in 2012; investment in manufacturing grew by 16.8 %, a fall by 4.6 % from the previous year and 10.4 % lower than in 2012.

Second, in 2014, investment from enterprises located in Hong Kong, Macao, and Taiwan grew by 8.7 %, an increase of 1.7 percentage points over the previous year; this accounted for 2.4 % of the total investment in fixed assets, an increase of 0.1 percentage points over the previous year. Finally, investment from foreign enterprises fell by 0.3 %, a decrease of 4.8 percentage points from the previous year.

In terms of project source, investment from central government projects grew by 10.8 %, a decrease of 1.6 percentage points from the previous year. Affected by the decline in local debt scale and land-transferring fee growth, the local projects investment rose only by 15.9 %, a decrease of 4.2 percentage points from the previous year.

In terms of capital source, in 2014, the source of investment funds mainly comprised domestic loans and self-raised enterprise funds. Among this, investment from the national budget funds grew by 14.1 %, a decrease of 2.9 percentage points from the previous year; this accounted for 5 % of the total investment, the same as the previous year. Investment from domestic loans grew by 8.6 %, a decrease of 5.8 percentage points from the previous year[3]; this accounted for 12 % of the total investment, the same as the previous year. Investment from self-raised funds grew by 16.4 %, a decrease of 6.4 percentage points from the previous year; this accounted for 70 % of the total investment, an increase of 3 % over the previous year and 9 % higher than that of 2010. Out of all self-raised funds, company investments from their own capital accounted for 27.7 %, a decrease of 2.58 percentage points from the previous year.[4] The growth of foreign capital investment shrank by 6.3 %, a decrease of 2.6 percentage points from the previous year; this accounted for 1 % of the total investment, the same as the previous year.

In conclusion, we consider the following prospects: (1) In 2015, thanks to excess production capacity and inventory accumulation, the growth in manufacturing and real estate investment will continue to decline. Infrastructure investment should moderately expand in order to stabilize investment. (2) Despite decline in the total social fixed asset investment growth, the proportion of private investment continues to improve; private investment is constantly moving from the secondary industry with excess capacity to the primary and tertiary industry, and there is good momentum of structural adjustment in the manufacturing industry. This shows that under the harsh post-recession market environment, market participants should make a determined effort to adjust inventory and optimize increment, and the private investment structure should gradually optimize under severe market pressure.

(3) In 2014, to a certain extent, the large supply of credit slowed down investment growth; the large increase in proportion of investment of self-raised enterprise funds meant that the demand for enterprise investment was expanding. In this background, in 2015, monetary policy should continue to ensure the supply of bank credit resources and the reduction in financing cost. Meanwhile, fiscal policy should focus on lightening the tax burden of enterprises to promote a steady rise in private investment. More importantly, the government should further streamline its administration and delegate power to lower levels, implement negative list management, ease the burden of enterprises and entrepreneurs, and reduce all sorts of investment and entrepreneurship costs. By comprehensively deepening reforms, adjusting policies, and improving its management, the government can reinvent China's economic growth potential.

  • [1] In 2014, by area, the national sales of commercial housing fell by 7.6 % from the previous year; the national commercial housing sales fell by 6.3 % from the previous year; and the month-tomonth drop in number of newly built commercial houses sharply increased from 4 in March to 69 in September in the country's 70 largeand medium-sized cities and was 66 by the end of the year
  • [2] This included transportation, warehousing and postal services, water conservancy, environment and public facilities management, electricity, heating power, gas and water production, and the supply industry
  • [3] In 2014, the RMB loans newly increased by 9.78 trillion yuan, against 9.59 trillion yuan in 2009
  • [4] In 2008, the proportion of self-raised funds at the disposal of enterprises was 52.1 %. This continued to decline sharply thereafter. It was 43.1 % in 2009, 39.2 % in 2010, 37 % in 2011, and 33.9 % in 2012. The sharp decline in proportion of self-raised funds at the disposal of enterprises illustrated the broadening of the investment channels
 
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