New World Investment Research

China’s CAPEX cuts are consistent with firms facing severe overcapacity, especially in manufacturing and upstream sectors, prompting them to rationalize investment rather than expand it. The small uptick in PPI signals that deflation may be bottoming, but it isn’t driven by stronger demand. It reflects cost stabilization while excess capacity still weighs on profitability.

Perhaps China is on its way of turning quantity into higher quality and building manufacturing without compressing margins, but this will not come fast. This will take many years for sure.