November 2021 CLIEAC indicates economic contraction in China
This report presents the November 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 still in contraction. Manufacturing conditions are stable (Caixin/Markit PMI up from 50.0 to 50.6; NBSC PMI down from 49.6 to 49.2), driven by power rationing and slower foreign demand though domestic demands increased. October trade data saw exports slowed to 27.1%, but beating expectations thanks to improvement in supply chains, while imports rose to 20.6%, fuelled by crude oil and coal 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 contraction mode. The monthly index average moved by -0.04 over the month to -0.37 (one year range is -0.37 to 1.44). The current quarter average of -0.34 is below the previous quarter average of 0.15 and below the yearly average of 0.58.
CLIEAC Components Over the previous period 0 component of the CLIEAC increased, 11 remained within the momentum range of +/-0.3 standard deviations (s.d) and 3 decreased. Less than half the components (03 out of 14) remain above their long-run average of zero. On the negative side, Fiscal Revenue exhibited the largest drop of -0.74 s.d, followed by Major Coastal Ports Volume and Electricity Production.
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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