China Center Commentary: Real estate and infrastructure investment -- risky wildcards for growth

This China Center members-only report provides interpretive comments on The Conference Board Leading Economic Index® (LEI) for China.

The LEI for China accelerated significantly in July, growing 1.4 percent from the month before. However, the overall trend in growth remains on a downward trajectory, as the six-month growth rate slowed to 4.7 percent from 7.2 percent in the previous six months. 

• Real estate activity underpinned LEI growth this month. An unexpectedly swift acceleration in Floor Space Started (seasonally adjusted) added some life to the real estate industry as prices rose and investment in the sector stayed strong. The government appears to be taking a more differentiated approach to real estate policy, evaluating the dynamics within regional markets and going so far as to allow Wenzhou, for example, to officially relax purchases on second homes after almost two years of m-o-m price declines. 
• Real estate activity has combined with increased infrastructure spending over the past two months to stabilize economic growth. Better growth prospects in the U.S. and Europe also helped to boost export growth in July, adding some support for China’s struggling manufacturing sector. The pace of China’s slowdown does appear to be easing, and we continue to expect August’s official economic data to perform relatively well (see, for example, the most recent flash HSBC PMI moving above 50). But while the downside risks are moderating, we still project that overall H2 growth will be lower than in H1 2013.