China Growth Tracker: Is China Recovering?

We published a note on how to track Chinese growth in real time using financial and commodity market prices. In these weekly reports, we update the indicators to help us track growth.

Summary

• Our indices remain separated with the China re-opening likely to pay dividends to economic data releases further down the line. The convergence seen over the past weeks was due to the market-based tracker scaling back rather than the economic data-based tracker catching up (Charts 1 and 2).

What Happened over the Christmas Holiday?

A lot happened over Christmas. Most notably, China announced that it would manage Covid-19 as a Class B infectious disease as it changed the official name to the ‘novel coronavirus infection’. On the same day, they also announced that starting 8 January quarantine requirements on inbound travellers would be removed. They were not done there. A day later, China announced that it would resume foreign visa applications.

As Covid-19 restrictions were scaled back, China came in with further plans to rejuvenate its property sector which saw property developers rally. These include:

1. Easing the ‘three red lines’ policy
2. Steering the industry onto a ‘high-quality development path’
3. Capping property agent commissions, likely between 2-2.5%
4. Extending favourable mortgage rates
5. Allowing PE funds to raise money for residential property developments
6. Strengthen the ‘too-big-to-fail’ developers’ balance sheets
7. Improving conditions of quality developers

Anticipation of renewed building activity helped spur iron ore higher. However, the rally faces several challenges.

Tracker Update

Our market data-based tracker is off the cycle lows but has passed back some of the positivity it earned through Q4. The tracker has fallen 23 points over the past two weeks, led by the negative year-on-year growth for the Baltic Dry Index (-40pp) while iron ore (-6pp), oil (-11pp) and China 10-year yields (-2.6bps) proved harmful too (Table 1). Meanwhile, our economic data-based tracker is yet to recover as positive initial data for December (non-manufacturing backlog: +0.5 points) was outweighed by negative counterparts (Table 2).

Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-markets research.

Ben Ford is Researcher at Macro Hive. Ben studied BSc Financial Mathematics at Cardiff University and MSc Finance at Cass Business School, his dissertations were on the tails of GARCH volatility models, and foreign exchange investment strategies during crises, respectively.

(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)