China's economic revival - betting on internal demand
Macro Insight
QuantCube’s insights into China Macro Outlook
The Chinese economy is gradually recovering this year, as the country emerges from nearly three years of strict Covid-19 restrictions. To evaluate the state of the Chinese economy QuantCube has examined various real-time alternative data sources, including data for the labour market, consumption trends and crude oil imports. The results of our analysis suggest that domestic discretionary consumption is spiking, while export-oriented activities and the property sector are struggling to rebound.
Consumption rebounding in all sectors except for real estate
It seems that the ongoing recovery in China is driven by pent-up demand in the services sector.
Exhibit 1 shows consumption trends in different sectors based on real-time alternative data. At QuantCube we track private consumption in real-time at both country and sectoral levels. The results are updated daily to provide insights into current consumption trends, ahead of the publication of official numbers. We observe that consumer demand in China started to pick up rapidly in recent weeks, especially for eating out (included in the Food component), travel and recreation activities. It is worth noting that the property sector was not among the sectors that recorded an upward trend after China’s reopening. This suggests that significant reforms and incentives are required for the property sector to recover from the crisis China has suffered due to structural problems.
Exhibit 1 - QuantCube Consumption Nowcast - China
The QuantCube Transportation Consumption Nowcast - which includes flights, as well as journeys by train and car, and fuel demand - has exhibited the strongest growth among all sectors in recent months.
We can also observe signs of revival in air traffic activity. Exhibit 2 shows the QuantCube Air Traffic Nowcast indicator that tracks international and domestic air travel activity in China. Although air traffic has been visibly increasing in recent months, its level is still 30% below the pre-pandemic period. Despite the recent rise in international flights to and from China, the recovery is mainly coming from domestic flights.
Crude oil imports have been strongly supported by Russian and Saudi Arabian supplies
Rising fuel demand combined with restocking activity seems to have boosted China’s demand for crude oil in the last few months. Exhibit 3 shows the QuantCube Crude Oil Imports Nowcast for China, which tracks crude oil imports and exports on a daily basis based on real-time Automatic Identification System (AIS) data for tanker movements in real-time. Our indicator is designed to capture the origin of crude oil arrivals for major importers. Comparing data for March 2023 with September 2022 shows that China’s import levels have increased by nearly 50%.
So which countries are supplying crude oil to China? In Exhibit 4 we examined the main origin of China’s crude oil imports. We observe that imports from Russia started to pick up recently after a slight decline in late 2022. Western sanctions, including the recent ban of Russian oil by the EU and the price cap on Russian crude and refined products introduced by G7 countries, have reduced the pool of buyers for Russian crude oil. This has most likely pushed Russia to trade its oil at deep discounts in non-western markets, especially China and India.
Saudi Arabia remains a top provider for China - the two countries have strengthened their partnership for oil projects and exchanged contracts to increase imports in the coming months given the uncertainties around Russia’s oil production and supply contraints.
Export-oriented activities and real estate– the slowdown persists
Economic recovery in China is currently relying on the revival of consumer demand in the service sector. This differs from historical patterns where exports, manufacturing and construction were the principal driving forces of demand and economic activity. To analyse the robustness of each of these sectors, QuantCube analysed its Job Openings Nowcast indicators. QuantCube collects and analyses thousands of job openings in real-time to provide daily insights on the latest labour market dynamics at both national and sectoral level.
Job openings in export-oriented sectors such as Technology and Industrials are still in negative territory compared to the previous year. This is most likely due to slowing global demand. The most dramatic decreases in job openings are observed in the sectors related to the housing market including Real Estate and Materials as demonstrated in Exhibit 5.
The persistent slowdown in these key sectors in the Chinese economy are casting doubt on the long-term and sustained expansion of the Chinese economy.
Will China’s recovery underpin global growth ?
It seems that the Chinese economy has entered a post-Covid recovery phase mainly supported by pent-up consumer demand. However, at this stage the impact of China’s economic rebound on global growth may be limited compared to previous recoveries experienced globally. In the past, China’s economic expansion was fuelled by strong investment and exports. On the back of weakening global demand, there is a question mark about whether the current domestic consumption-led recovery will support a recovery in investment and exports in a similar way to before. In addition, the persistent downturn in the Real Estate sector, another critical driver of China’s domestic growth, has not shown signs of recovery so far. We need to wait and see whether the current recovery in China is strong enough to kick start sustainable growth in the global economy.
