I compile three indicators: one for monetary conditions (tracks changes in money supply, fx, real interest rates, yield curve structure); one for industrial momentum (exports, both in Rmb value and in volume, industrial production, electricity production); one for domestic demand (retail sales, urban investment, auto sales, real estate climate index).
For each dataline I track, I express the previous month's movement as a number of standard deviations away from seasonalized trends. Overall movements in underlying momentum are best captured using a 6m average. The calendrical instability of Chinese New Year offers difficulties which I strive to deal with using as much information as I can muster, but the ramifications of Chinese New Year only really work their way out of the data by April.
I now have most of the data I need to construct these indicators, and where I do not yet have the data (auto sales, electricity generation, real estate climate) I have chosen to simply apply seasonal trends (ie, they are effectively neutralised).
The summary graph first:
Comment: Contrary to popular belief, monetary conditions are tightening, primarily as a result of the strength of the Rmb and positive real interest rates, though it is also true that monetary aggregates M1 and M2 are accelerating far less quickly than the growth of aggregate financing would suggest. Historically, when monetary conditions tighten, domestic demand is vulnerable, but so far momentum has only flattened out. Industrial momentum is extremely volatile over the holiday period, but has exited with modestly positive momentum.
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