[20081114] CITICSMACRO RESEARCHCITICS-Comments on 10M08 Industrial Producti

Dear all,
Attached please find the Comments on 10M08 Industrial Production Data by Zhu Jianfang, Liu Ke and Sun Wencun.
Should you have any query, please feel free to contact your account managers.
Event:
In October, added-value growth of national or large industrial enterprises (enterprises that pull in RMB 5 million or more in revenue) was up 8.2% YoY, down 9.7 ppts over the same period last year.
Comments:
Growth in industrial added-value slowed more than expected.
In October, added-value growth of industrial enterprises was up 8.2%, down 3.2 ppts from 11.4% in Sept. It was estimated that after the Olympics, industrial production growth will see slowing decrease or at least slightly rebound, but the real growth of industrial added-value slowed far more than expected.
Declining investments and exports are the major reasons for the slow-down in industrial added-value growth.
At present, investments in real term appear to be sliding; real estate investments are declining even more noticeably. Consequently, the slide in investments in sectors closely related with real estate is especially noticeable; sectors like steel, automotive, etc. have all witnessed negative growth. Declining exports are another reason for the slow-down of industrial added-value growth. In October, the growth rate of delivered exports significantly fell to 6.8% from 16.3% in Aug.
Infrastructure investments will help contain this negative trend.
Recently, the State Council has initiated infrastructure construction projects in full swing, allocating another RMB 100 billion investment in 4Q08 alone, and will earmark RMB 20 billion post-disaster recovery funds to this end next year, which is just the tip of the iceberg of a package worth a total RMB 400 billion. The launch of these infrastructure projects will, to a large degree, can help contain this negative trend currently affecting industrial enterprises. If construction projects progress rapidly, industrial production growth rate is likely to rebound at the end of this year.