March 2021 CLIEAC indicates economic expansion in China
This report presents the March 2021 update on the Commodity Leading Index Economic Activity China (CLIEAC, see Appendix for index description).
Expansion As indicated by our CLIEAC, the Chinese economy remained in expansion mode. Manufacturing conditions worsened, as reflected by the PMI figures (Caixin/Markit PMI down from 51.5 to 50.9; NBSC PMI down from 51.3 to 50.6), due to the seasonal slowdown of the Lunar New Year. February trade data saw exports surge by 154.9%, due to the low base in 2020 caused by China's lockdown to control the pandemic and a rebound in foreign demand, while imports rose by 17.3%, partly due to stockpiling of semiconductors and energy products. 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 an Expansionary mode. The monthly index average moved by 0.18 over the month to 0.93 (one year range is -1.29 to 0.93). The current quarter average of 0.72 is above the previous quarter average of 0.56 and above the yearly average of 0.08.
CLIEAC Components Over the previous period 6 components of the CLIEAC increased, 5 remained within the momentum range of +/-0.3 standard deviations (s.d) and 3 decreased. More than half the components (11 out of 14) remain above their long-run average of zero.
On the positive side, Buildings Sales experienced the largest increase of +4.23 s.d, followed by Fixed Asset Investment Manufacturing and Fiscal Revenue. On the negative side, NBSC PMI exhibited the largest drop of -0.38 s.d, followed by Caixin/Markit PMI 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 (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
Source: Four Elements Capital