Looking Past Gigantic Base Effects To China’s (Really) Struggling Economy

The Chinese were first to go down because they had been first to shut down, therefore one year further on they’ll be the first to skew all their economic results when being compared to it. These obvious base effects will, without further scrutiny, make analysis slightly more difficult. What we want to know is how the current data fits with the overall idea of recovery: is it on track, perhaps going better than thought, or falling short.

Another set of huge positives has the potential to be misleading (like the initial burst of estimates immediately following the trough had been).

China’s National Bureau of Statistics (NBS) reported late last night on the country’s Big Three economic accounts for the joint January-February period (the two months are combined because the New Year Golden Week holiday is celebrated at different times each year depending upon the Chinese calendar). The figures were gigantic if only given the scale of decline during the year-earlier period.

For Industrial Production, estimated output rose 35.1% year-over-year, after having fallen by 12.5% last year in the same two months. Retail Sales, the second of the three, gained 33.8% year-over-year, compared to -20.5% the year before. Likewise, total Fixed Asset Investment (FAI), the final of the trio, jumped by 35.0% in January-February 2021 compared to January-February 2020 (which had been 26.4% less than January-February 2019).

What do any of these huge positives mean?

Unlike most Western statistical agencies, China’s NBS doesn’t give us many other clues. In other words, unlike the US, Europe, or Japan, there aren’t any lengthy, historically-driven seasonally-adjusted data put together using consistent methodology and surveys useful in just these kinds of situations when annual comparisons can be made near meaningless; the Chinese are notorious, especially FAI, for changing the survey panel composition for reasons that are never fully disclosed, creating discontinuities along the way.

To be fair, the government is attempting to move (somewhat) in the direction of more consistency and does at least nowadays provide a couple of marginally more helpful alternate formats.

Beginning with IP, no, just the unadjusted data. For it, though, we are led to believe that total output in January-February 2021 was about 16.9% more than it had been during January-February 2019 (down 13.5%, then up 35.1% from that level). That works out to an 8.1% compounded annual rate, noticeably better/higher than pre-2020.

With the official (and Caixin) manufacturing PMI declining, and with much of that elevated activity being advanced by COVID-related industrial manufacturing, questions remain about whether or how much this would be sustainable. Furthermore, even at 8% it doesn’t represent a comeback of pre-2014 growth, just a slightly pickup from what had been Euro$ #4’s deeper slump.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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