The latest economic environment in China
? This report utilizes high frequency data to illustrate the latest economic activity in China,
especially with the resumption of work and production after the lifting of the lockdowns.
? We believe that commodity prices in China, though they surged after the escalation of
the Russia-Ukraine conflict, are stabilizing. The futures prices of some industrial
commodities, including copper cathodes and aluminum, have returned to the original
level. Energy-related commodity prices remain high, but have show ed some decline
from Mar 22.
? In the manufacturing sector, export indicators remain sluggish, and online order prices
have surged. Auto sales are weaker, but w e believe the stimulus measure unveiled and
the recent reaction by auto makers w ill boost auto sales in the near future.
? Shanghai reported a decline in confirmed COVID cases and ended the lockdowns, but
some may worry that the road to work and production resumption may be slow and
painful. How ever, if w e look at the historical data for Beijing, Shanghai and Guangzhou,
in 2020 w hen COVID first broke out, it took about two months for the traffic congestion
delay index and metro passenger volume to return to the previous level. We believe we
may see a similar trend for Shanghai and other cities.
Commodities: Both energy-related commodities and non-energy
commodity prices in China on a stabilizing trend
The geopolitical conflict between Russia and Ukraine has led to large commodity price
shocks. Russia is one of the most important exporters of crude oil (12%) and natural gas
(21%), while grains and non-ferrous metals exported by Ukraine play an important role in
global trade. As a close trade partner of both countries, China is expected to experience a
surge in commodity prices. The new wave of Covid-19 in China has deepened such
worries, given the Mar 22 lockdown in Shanghai, which is one of the world’s largest ports.
The prices of commodities in China, as illustrated in the high frequency data, are on a
stabilizing trend. For industrial commodities, such as copper cathodes and aluminum, a
rise in futures prices w as observed in Mar 22 w hen the conflict between Russian and
Ukraine escalated, but the price gradually declined back to its pre-Mar 22 level recently.
For energy commodities like coal, a similar trend w as observed in futures prices. The
Nanhua Futures Index of Coking Coal rose in Mar 22 and then gradually declined, though
it remains at a relatively high level.
Manufacturing: exports remain weak, online order prices have
surged, the auto market has great potential
We use the Yiw u-China Small Commodity Index to study trading patterns in consumer
goods, as it captures data from the largest wholesale market for small daily use articles in
China. On the one hand, the data indicates that exports remain soft. Usually after Lunar
New Year, the export price index tends to be robust, but in 1H22, w e saw a short surge in
the export index follow ed quickly by a rather flat trend, which w as similar to that in 2020,
amid the first outbreak of COVID-19. On the other hand, the online order price index has
surged to a historical high, which could be another effect of the pandemic: raw materials
and factory productivity are limited, and customer orders have changed from offline to
online. The auto market has seen a decline in average weekly sales at both the wholesale
and retail levels, which was somewhat expected. In line with our previous discussion, we
believe that the stimulus measures, including car tax cuts and the reaction by auto makers,
w ill encourage auto sales in the coming months.
Resuming Business: Looking at the historical data
As the number of confirmed COVID-19 cases declined in Shanghai, the city-w ide lockdown
w as lifted, local residents and businesses are back to work, and production has resumed,
but some may worry that the road to recovery w ill be slow and painful. But if w e use traffic
congestion data and metro volume data in Beijing, Shanghai, and Guangzhou as an
indicator for work and production resumption, in 2020 after the first COVID-19 outbreaks,
it took about two months for the traffic data in those major cities to rebound to the normal
level. We believe we’ll see a similar trend for Shanghai, Beijing and other major c ities that
w ere locked down in recent months.