October 2021 CLIEAC indicates economic contraction in China
This report presents the October 2021 update on the Commodity Leading Index Economic Activity China (CLIEAC, see Appendix for index description).
Contraction As indicated by our CLIEAC, the Chinese economy is starting to contract. Manufacturing conditions are contracting (Caixin/Markit PMI up from 49.2 to 50.0; NBSC PMI down from 50.1 to 49.6), led by high-energy consumption sectors struggling after the soaring prices. September trade data saw exports rose to 28.1%, based on solid global demand, while imports dropped to 17.6%, with lower shipments of semiconductors and industrial metals. 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 contraction mode. The monthly index average moved by -0.08 over the month to -0.33 (one year range is -0.33 to 1.44). The current quarter average of -0.33 is below the previous quarter average of 0.15 and below the yearly average of 0.66.
CLIEAC Components Over the previous period 2 components of the CLIEAC increased, 9 remained within the momentum range of +/-0.3 standard deviations (s.d) and 3 decreased. Less than half the components (04 out of 14) remain above their long-run average of zero. On the positive side, Railway Freight Traffic experienced the largest increase of +1.03 s.d, followed by Major Coastal Ports Volume. On the negative side, Electricity Production exhibited the largest drop of -2.8 s.d, followed by Fiscal Revenue and Fixed Asset Investment Real Estate.
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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