It is still too early to tell what the impact of COVID-19 on China’s economy will be. However, data suggest that the world’s second largest economy entered 2020 in a weaker position than indicated by the official figures. Fathom Consulting’s China Momentum Indicator (CMI) weights together twelve variables to gauge underlying momentum in the Middle Kingdom. The latest update of our CMI points to growth of 5.1% in December. That figure confirmed that China’s economy slowed last year, averaging growth of 4.8%, down from 5.8% in 2018.
Refresh the chart in your browser | Edit the chart in Datastream
Our estimate falls below the official government GDP data, and the two series have tended to diverge increasingly from 2012 onwards. This growth shortfall implies labour underutilisation. Taking the official labour productivity figures as given, our China Urban Underemployment Indicator (CUUI) replaces published estimates of economic activity with our own and calculates an implied measure of effective employment. According to the CUUI, 14.6% of China’s working-age urban population was underemployed at the end of last year, up from 13.7% at the end of 2018. This is well above the official 3.6% urban unemployment rate.
Want more charts and analysis? Access a pre-built library of charts built by Fathom Consulting via Datastream Chartbook in Eikon.
Looking beyond the impact of COVID-19, China’s medium-term growth prospects will be heavily determined by productivity growth. A country’s economic output can be broken down into capital, labour and total factor productivity. China’s remarkable economic transformation over the past couple of decades has been driven heavily by a large increase in capital spending. This growth in capital spending has slowed and is expected to ease further. Meanwhile, the country’s demographics are relatively poor, with the working-age population already in decline — a trend expected to get worse. That leaves total factor productivity. Progress on this front has so far been relatively poor. While the capital stock increased by an annual average rate of 11% in the 20 years to 2017, the equivalent figure for total factor productivity was just 2%.
Refresh the chart in your browser | Edit the chart in Datastream
The government has previously touted its Made in China 2025 strategy as one way to spur innovation and the programme could boost productivity significantly. However, our RiCArdo database highlights mixed progress to date. China’s Revealed Comparative Advantage (RCA) — a measure of how specialised a country is in different sectors based on exports — varies significantly across these industries. China stands out as being among the world’s leaders in advanced railway, IT and robotics. However, the country remains well below the cutting edge in aerospace and medical industry. Success across these areas may be required for China to sustain the high rates of economic growth that many have become accustomed to.
Refresh the chart in your browser | Edit the chart in Datastream
The charts in this article have been created using Chartbook on Datastream. The Chartbook, created and maintained by Fathom Consulting, is a library of over 9000 charts, containing up-to-date macro and financial market data for over 170 countries. Whether it is a particular topic, country or variable you are interested in charting, the Chartbook has everything you need. Simply type search ‘cbook’ into your Eikon search bar or click the ‘Chartbook’ tab on Datastream to find out more.
Fathom Consulting, which is based in London, has opened a US office. This office provides News in Charts. Please contact Fathom US directly if you have any questions or comments.
__________________________________________________________________________________
Datastream
Financial time series database which allows you to identify and examine trends, generate and test ideas and develop view points on the market.
Refinitiv offers the world’s most comprehensive historical database for numerical macroeconomic and cross-asset financial data which started in the 1950s and has grown into an indispensable resource for financial professionals. Find out more.
