March 2022 CLIEAC indicates economic recovery in China
This report presents the March 2022 update on the Commodity Leading Index Economic Activity China (CLIEAC, see Appendix for index description).
Recovery As indicated by our CLIEAC, the Chinese economy remains in recovery mode. Manufacturing conditions are stable (Caixin/Markit PMI up from 49.1 to 50.4; NBSC PMI up from 50.1 to 50.2), lifted by expanding new orders but long-standing challenges facing the manufacturing sector remain. The Jan-Feb trade data saw exports at +16.3%, as many factory workers did not return home for the Lunar New Year, and imports were at +15.5%, noting that higher prices from the Ukraine crisis would provide a boost to the country’s imports value. RMB is depreciating against the basket of currencies of main trade partner. Correspondingly, as shown in the Swirlogram, the CLIEAC places overall economic activity in recovery mode. The monthly index average moved by 0.24 over the month to 0.07 (one year range is -0.38 to 1.44). The current quarter average of -0.03 is above the previous quarter average of -0.25 but below the yearly average of 0.3.
CLIEAC Components Over the previous period 6 components of the CLIEAC increased, 5 remained within the momentum range of +/-0.3 standard deviations (s.d) and 3 decreased. Close to half the components (06 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 Foreign Direct Investment and Fixed Asset Investment Manufacturing. On the negative side, Exports exhibited the largest drop of -0.89 s.d, followed by Fiscal Revenue and Building Sales.
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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