China’s economy expanded at an 18.3% annualized pace in Q1 2021. Interpreting that number is challenging since China’s economy contracted by 6.8% year on year in Q1 2020 as a result of pandemic- related shutdowns. One way of finding a signal amid the noise is to calculate the continuously compounded annualized growth rate since Q1 2019. Viewed in that manner, the Chinese economy expanded at a 5.0% annual pace on average, or 10.3% in total since Q1 2019. A 5% pace of growth is slower than China had experienced pre-pandemic when its economy was growing at close to 6.5%.
Not all sectors of the Chinese economy have been impacted equally. A similar calculation can be performed on the Li Keqiang Index, a proxy for China’s manufacturing and industrial sectors that is based on bank loans, electricity production and rail freight volumes. The Li Keqiang index showed growth of 17.6% from February 2020 to February 2021 after 0.9% growth from February 2019 to February 2020. That translates to 8.9% annualized growth (Figure 1) and is consistent with manufacturing growth rates observed in the last seven months of 2020.
As such, it seems that in China, as elsewhere, the manufacturing sector has been much more robust than the services sector. Perhaps this is not surprising given that households around the world could consume manufactured goods but have had their ability to spend money on experiences sharply curtailed. This is reflected in China’s soaring export numbers as well as in figures such as U.S. retail sales, which were 12.3% higher in March 2021 than they were at the pre-pandemic peak, even when adjusted for inflation (Figure 2).
If China’s manufacturing and export sectors have grown more quickly than the rest of its economy, then it follows that other parts of the Chinese economy must be growing at a slower pace. This much is evident from China’s domestic air travel numbers, which had been growing at about 7% per year pre-pandemic. Post-pandemic, Chinese domestic air-travel never fully recovered (Figure 3). Meanwhile, international travel remains 97.8% lower.
All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author(s) and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.
Erik Norland is Executive Director and Senior Economist of CME Group. He is responsible for generating economic analysis on global financial markets by identifying emerging trends, evaluating economic factors and forecasting their impact on CME Group and the company’s business strategy, and upon those who trade in its various markets. He is also one of CME Group’s spokespeople on global economic, financial and geopolitical conditions.
View more reports from Erik Norland, Executive Director and Senior Economist of CME Group.
From Renminbi to Rupee, Peso to Real, Rand to Ruble, CME FX delivers greater certainty for trading emerging markets in every market condition