Trivium Weekly Roundup | Investment Meltdown

Something funky is happening in China’s economy.

• Over the past several months, we’ve seen a sudden and dramatic slump in fixed asset investment (FAI).

FAI may not sound especially sexy. But it’s a bulwark of China’s economic growth, covering everything from roads to rail, ports to bridges, and factories to homes.

And since the summer, it’s been shrinking fast.

• Back in July, FAI dipped into the red, declining just 0.1% y/y.

• But since then, the decline has gone into freefall — plunging 12.2% y/y in October.

This is unprecedented.

• Outside of the pandemic, China has never seen this many consecutive months of contracting FAI.

• Some commentators say this drop-off is an early sign of economic meltdown.

• Others claim the stats bureau must have botched the numbers.

In reality, it’s neither.

• As we discuss in the latest Trivium China Podcast, the drop in FAI reflects a perfect storm of local governments’ reaction to recent policy signals, economic headwinds, and shifting local priorities — all of which are hitting investment across real estate, manufacturing, and infrastructure.

Our most recent blog post lays out this research in full, but for now, here is a quick overview of what’s happening.

The anti-involution push

After an impressive 59 months of consecutive growth, manufacturing investment slipped into the red in July and has continued to decline — at an accelerating pace — ever since.

• Much of this pullback reflects Beijing’s campaign against overcapacity.

• In early July, the Central Commission for Financial and Economic Affairs (CCFEA) — the Party’s top economic policymaking body — pledged to crack down on the “involution-style” competition plaguing China’s economy, from petrochemicals to electric vehicles (NEVs), and cleantech to metals.

Since then, there has been a flurry of industry meetings, guidelines, and ministerial symposiums aimed at encouraging various sectors to reduce excess capacity.

• And it’s working — since July, FAI in the plastics, chemicals, cleantech, and non-ferrous metal industries has rapidly declined.

Local government bonds and redirected investment

Since July, infrastructure spending has also declined by approximately RMB 387 billion relative to 2024 levels, representing a 4.4% drop. At the same time, issuance of government bonds — the main debt instrument used to fund public infrastructure — has soared.

• So where has the money gone?

This year, the Ministry of Finance (MoF) expanded the use of local government special-purpose bonds (SPBs) — a debt instrument typically used to fund infrastructure investment