July 2021 CLIEAC indicates economic slowdown in China
This report presents the July 2021 update on the Commodity Leading Index Economic Activity China (CLIEAC, see Appendix for index description).
Slowdown As indicated by our CLIEAC, the Chinese economy went in slowdown mode. Manufacturing conditions worsened, as reflected by the PMI figures (Caixin/Markit PMI up from 52.0 to 51.3; NBSC PMI down from 51.0 to 50.9), on high raw material costs, a shortage of semiconductors and a COVID-19 outbreak in Guangdong. June trade data saw exports rise by 32.2%, as vaccination and easing of lockdowns lifted global demand, while imports rose by 36.7%, boosted by high raw material prices. RMB depreciated 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 an Slowdown mode. The monthly index average moved by -0.33 over the month to 0.75 (one year range is 0.16 to 1.44). The current quarter average of 0.75 is below the previous quarter average of 1.32 and below the yearly average of 0.79.
CLIEAC Components Over the previous period 0 components of the CLIEAC increased, 7 remained within the momentum range of +/-0.3 standard deviations (s.d) and 7 decreased. More than half the components (10 out of 14) remain above their long-run average of zero.
On the negative side, Major Coastal Ports Volume exhibited the largest drop of -1.46 s.d, followed by Foreign Direct Investment 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