China’s Economy Picks Up in January, Building on 2020’s Recovery

China’s recovery picked up speed this month, putting it further ahead of rivals after recent data showed it was likely the only major economy to have grown in 2020.

An aggregate index combining eight early indicators tracked by Bloomberg increased by one step from last month, led by strong performances in exports, property and the stock market.

The export boom that helped propel growth last year showed no signs of easing, with South Korean exports — a bellwether for global trade — climbingalmost 11% in the first 20 days of January compared to the same period last year. Shipments to China rose 19% during that period, indicating strong demand ahead of the Lunar New Year holiday, which falls in February.

Confidence among China’s smaller, export-oriented businesses eased in January, but they continued to outperform their domestic-focused peers, according to Standard Chartered Plc, which surveys more than 500 small and medium-sized companies in the country each month.

However, the survey highlights risks from recent virus outbreaks in China and rising costs, which could squeeze some firms’ profits.

The “re-imposition of restrictive measures after new Covid outbreaks weighed on services activity again,” Standard Chartered’s Lan Shen and Shuang Ding said in a report. The rapid growth in commodity prices and signs that export demand may be plateauing are also headwinds, they wrote.

A gauge of producer prices rose above zero this month, the first time it’s posted a positive reading since January 2020, before the pandemic hit. Metal futurescontinued to hold up and one of the biggest Chinese traders in coppersaid prices could climb another 10% in the first half of this year. However, expanding stocks of steel rebar and iron ore indicate that price rises may slow down or reverse.

An end to recent declines in producer prices would help downstream companies and is a sign that the economy is getting back to normal.

China’s stock market continued to soar, with the benchmark index of 300 mainland companies almost back at the record high it hit in late 2007. While that is buoying the overall view of the economy this month, there aresome signs that the market has peaked.

Early Indicators

Bloomberg Economics generates the overall activity reading by aggregating a three-month weighted average of the monthly changes of eight indicators, which are based on business surveys or market prices.

• Major onshore stocks – CSI 300 index of A-share stocks listed in Shanghai or Shenzhen (through market close on 25th of the month)
• Total floor area of home sales in China’s four Tier-1 cities (Beijing, Shanghai, Guangzhou and Shenzhen)
• Inventory of steel rebar, used for reinforcing in construction (in 10,000 metric tons). Falling inventory is a sign of rising demand
• Copper prices – Spot price for refined copper in Shanghai market (yuan/metric ton)
• South Korean exports – South Korean exports in the first 20 days of each month (year-on-year change)
• Factory inflation tracker – Bloomberg Economics created tracker for Chinese producer prices (year-on-year change)
• Small and medium-sized business confidence – Survey of companies conducted by Standard Chartered Plc
• Passenger car sales – Monthly result calculated from the weekly average sales data released by the China Passenger Car Association

— With assistance by James Mayger

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