April 2022 CLIEAC indicates economic Expansion in China
This report presents the April 2022 update on the Commodity Leading Index Economic Activity China (CLIEAC, see Appendix for index description).
Expansion As indicated by our CLIEAC, the Chinese economy is in expansion mode. Manufacturing conditions are worsening (Caixin/Markit PMI down from 50.4 to 48.1; NBSC PMI down from 50.2 to 49.5), due to China’s “zero tolerance” COVID policy imposing strict lockdowns. March trade data saw exports at +14.7%, slowed down compared to last month due to disruptions in factory operations, road transport and port congestion, while imports were at -0.1%, as COVID-19 lockdowns hampered freight arrivals and weakened domestic demand. RMB is at against the basket of currencies of main trade partner. Correspondingly, as shown in the Swirlogram, the CLIEAC places overall economic activity in expansion mode. The monthly index average moved by 0.09 over the month to 0.39 (one year range is -0.38 to 1.43). The current quarter average of 0.39 is above the previous quarter average of 0.05 and above the yearly average of 0.23.
Note: The values of the previous quarters reflect the index average for the entire quarter. The values of the current quarter reflectthe index average for the current quarter up to the date of the report release.
CLIEAC Components Over the previous period 3 components of the CLIEAC increased, 4 remained within the momentum range of +/-0.3 standard deviations (s.d) and 7 decreased. Half the components (07 out of 14) remain above their long-run average of zero.
On the positive side, Fixed Asset Investment Real Estate experienced the largest increase of +3.15 s.d, followed by Electricity Production and Exports.
On the negative side, Foreign Direct Investment exhibited the largest drop of -2.56 s.d, followed by Vehicle Sales and Major Coastal Ports Volume.
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Appendix: Index Composition The Commodity Leading Index Economic Activity China (CLIEAC) is a composite index that provides a measure of overall economic activity in China. The index consists of a equally weighted basket of components which reflect fundamental data related to economic activity. Each index component is Chinese New Year calendar effect-, trend- and seasonally adjusted, smoothed, normalized and updated in the index as new data becomes available. The rolling standard score (Zscore) approach is applied to normalize each component before aggregation. As such, a reading above zero indicates expansion and below zero contraction of economic activity relative to the long-run average. Upwards and downwards movements of the index indicate improving and deteriorating economic activity respectively. The CLIEAC is composed of 14 components covering supply- and demand- side factors across five categories.
#Production: Electricity Production, Fiscal Revenue, Caixin/Markit and NBSC Purchasing Manager Index
#Transportation: Port Freight Traffic, Railway Freight Traffic
#Trade: Total Imports, Total Exports
#Consumption: Retail Sales, Real Estate Sales, Vehicle Sales
#Investments: Fixed Assets Investment Real Estate and Manufacturing, Foreign Direct Investments
Source: Four Elements Capital