This report presents the May 2021 update on the Commodity Leading Index Economic Activity China (CLIEAC, see Appendix for index description).
As indicated by our CLIEAC, the Chinese economy remained in expansion mode. Manufacturing conditions were stable, as reflected by the PMI figures (Caixin/Markit PMI up from 50.6 to 51.9; NBSC PMI down from 51.9 to 51.1), factory activity expanded on stronger demand, but concerns over raw materials costs clouded the outlook. April trade data saw exports rise by 32.3%, as US economy is booming and the India COVID-19 crisis caused some orders to shift to China, while imports rose by 43.1%, boosted by higher commodity prices. 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 0.02 over the month to 1.47 (one year range is -0.69 to 1.47). The current quarter average of 1.45 is above the previous quarter average of 0.82 and above the yearly average of 0.56.
Over the previous period 4 components of the CLIEAC increased, 6 remained within the momentum range of +/-0.3 standard deviations (s.d) and 4 decreased. More than half the components (13 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 +4.11 s.d, followed by Fiscal Revenue and Foreign Direct Investment. On the negative side, Vehicle Sales exhibited the largest drop of -1.86 s.d, followed by Buildings Sales 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 (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.
1. Production: Electricity Production, Fiscal Revenue, Caixin/Markit and NBSC Purchasing Manager Index
2. Transportation: Port Freight Traffic, Railway Freight Traffic
3. Trade: Total Imports, Total Exports
4. Consumption: Retail Sales, Real Estate Sales, Vehicle Sales
5. Investments: Fixed Assets Investment Real Estate and Manufacturing, Foreign Direct Investments
Source: Four Elements Capital