Commodity Leading Index Economic Activity China (Feb 2019)


February CLIEAC indicates economic contraction in China
by Four Elements Capital

This report presents the February 2019 update on the Commodity Leading Index Economic Activity China (CLIEAC, see Appendix for index description).

Contraction As indicated by our CLIEAC, the Chinese economy continues to contract. Manufacturing conditions are stable, as reflected by the PMI figures (Caixin/Markit PMI up from 48.3 to 49.9; NBSC PMI down from 49.5 to 49.2). January’s trade data shows exports rose 9.1% yoy, due to the upcoming Lunar New Year holiday in February while imports contracted 1.5% yoy. RMB is stable against the basket of currencies of main trade partners over the month. Correspondingly, as shown in the Swirlogram, the CLIEAC places overall economic activity in a Contraction mode. The monthly index average moved by 0.13 over the month to -0.26 (one year range is -0.39 to 0.73). The current quarter average of -0.35 is below the previous quarter average of -0.12 and below the yearly average of 0.27.


CLIEAC Components Over the previous period 5 component of the CLIEAC increased, 6 remained within the momentum range of +/-0.3 standard deviations (s.d.) and 3 decreased. Half of the components (7 out of 14) remain above their long-run average of zero. On the positive side, Fiscal Revenue experienced the largest increase of +1.77 s.d., followed by Fixed Asset Investment Real Estate and Exports. On the negative side, Foreign Direct Investment exhibited the largest drop of -1.29 s.d. followed by Caixin/Markit PMI.


Nowcasting GDP The CLIEAC has been a good indicator for overall economic activity as measured by yoy GDP growth. Using the CLIEAC as predictor in our nowcasting model substantially improves estimates of current quarter GDP relative to the benchmark autoregressive (AR) model. Based on current economic activity as reflected by the CLIEAC, the point estimate for the first quarter in 2019 yoy GDP growth is 6.34% with the lower and upper 90% confidence bounds at 6.12% and 6.55% respectively.


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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 (Z score) 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

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