China’s leading indicator slides on

Courtesy of Also Sprach Analyst:

We will soon get a glimpse of how the Chinese economy was doing in July and to see if it has indeed reached a bottom as most are hoping for.

There are, of course, reasons to be both optimistic and pessimistic about the bottoming.  As the Chinese government has elevated growth to a top priority and as local governments are announcing massive investment plans (never mind if they will actually be implemented in full for the moment), there is high hope that the effect will start kicking in soon.  On the other hand, data are not particularly convincing in this respect, and we increasingly believe that should growth ever pick up in Q3 or Q4, it will be a rather short-lived one, not a self-sustaining one.

Ahead of the data releases, here is a interesting indicator that we haven’t written about before.  The chart below is a leading indicator jointly developed by National Bureau of Statistics and Goldman Sachs.  So far, the leading indicator continues to slide:

Here is a description of the leading indicator, via Goldman Sachs:

Leading Indicator:

It contains information on  money supply,  foreign direct investment contractual value, and Shanghai stock market turnover, as well as:

Interest rate spread is the difference between the weighted-average yield of the seven-year or above Treasury bond with those of one year or less.

Consumer Expectation Index is compiled by the CEMAC using a monthly survey conducted in thirty major cities covering 70,000 individuals.

Ratio of industrial sales to production is the ratio of the total value of industrial sales divided by the total value of industrial production in the same month. This ratio tries to capture the inventory cycle in the industrial sector. Industries included are mining and manufacturing.

Number of new investment projects started tracks the number of new fixed-asset investment projects started. The government uses this as a leading indicator for future investment growth and economic expansion.

Index of Logistics refer to the volume of freight transportation and total tonnage of cargo reported by sixteen major coastal ports.

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Comments

  1. GunnamattaMEMBER

    When I look at this sort of data, and I have looked at a bit, coming out of China, the question that occurs is not so much is China heading south or not (economic growth wise) but rather the extent to which the people running China are in a position to do something about it, and what there response is.

    If you think that China is about the last major economy which could even countenance fiscal stimulus, without having the markets short them, I tend to wonder if there is likely to be any chance it would seriously consider sitting around the table with the other mahjor economies to work out a sort of global gameplan.

    Then I find myself wondering if it is any sort of chance of succeeding if it goes it alone.