July 2020 CLIEAC indicates economic recovery in China
CLIEAC is available as daily data on Alphien
This report presents the July 2020 update on the Commodity Leading Index Economic Activity China (CLIEAC, see Appendix for index description).
Recovery As indicated by our CLIEAC, the Chinese economy entered recovery mode. In Q2 2020, quarterly GDP growth was 3.2% yoy, rebounding from the contraction in Q1 2020. Manufacturing conditions improved slightly, as reflected by the PMI figures (Caixin/Markit PMI up from 50.7 to 50.9; NBSC PMI up from 50.6 to 50.9), due to the increase in domestic demand. June trade data saw exports rose by 0.5%, as countries begin to ease lockdown measures, while imports increased by 2.7%, driven by crude oil and iron ore imports. RMB appreciated 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 Recovery mode. The monthly index average moved by 0.23 over the month to -0.46 (one year range is -1.31 to 0). The current quarter average of -0.46 is above the previous quarter average of -1.05 and above the yearly average of -0.53.
CLIEAC Components Over the previous period 4 components of the CLIEAC increased, 9 remained within the momentum range of +/-0.3 standard deviations (s.d.) and 1 decreased. Less than half the components (5 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 +1.32 s.d., followed by Fiscal Revenue and Electricty Production.
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
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Source: Four Elements Capital