Alternative China data shows growth strengthening

While worries about China’s economic outlook have increased, some fresh analysis economic activity data suggests that growth strengthened in May to the strongest rate so far this year.

The China Activity Proxy from Capital Economics, an attempt to track the pace of growth in China without relying on the official GDP figures, picked up to 5.7% in May from 5.5% a month earlier.

On a monthly basis the CAP, which is based on a set of low-profile indicators chosen to reflect activity across a wide section of the economy, climbed to 7.0% from 6.7%.

China's official GDP figures have indicated stable economic growth in recent quarters at just under 7% year-on-year but the CAP suggests that growth peaked in July of last year at 6.6% before slowing to 4.8% at the start of 2018, a period when growth also softened in seasonally-adjusted 3-month on 3-month annualised terms.

"More recently though, just as concerns about China’s economic prospects have become more widespread, our CAP has instead pointed to a rebound in activity," said economist Chang Liu, estimating growth rose further in May to multi-month highs in both annual and three-monthly terms.

"We have been saying for some time that a short-lived economic rebound was likely as the government’s crackdown on emissions eased," said Chang. "But this boost to growth should have been a one-off and, given that the pollution controls were removed altogether at the end of March, growth should have stabilised in May. The further pick-up last month was therefore a bit of a surprise.

"This doesn’t change our view that the economy will weaken again in the second half of the year though, as headwinds from the ongoing slowdown in credit continue to build. The PBOC’s RRR cut over weekend is likely to loosen monetary conditions and adds to the signs that policymakers’ focus is shifting towards supporting economic growth. But given the usual lags involved, any easing in policy over the coming months won’t feed through to a stabilisation in growth until 2019."

May’s pick-up was fairly broad based, the CAP data showed, with four of the five components rising on a 3m/3m basis.

The exception was electricity output, which slowed sharply and can be volatile from month to month. Growth in freight and passenger traffic volumes both rose in May to the fastest pace in more than a year. Property construction growth picked up too. External demand also appeared healthy, with the volume of sea cargo moving through China’s ports accelerating further last month.