Measuring China’s first quarter economic performance without up-to-date National Bureau statistics

• The coronavirus outbreak will no doubt have a negative impact on the Chinese economy in this first quarter, but the question really is how large it will be. An educated guess to answer this question has never been harder as the National Bureau of Statistics will not publish industrial and retail sales data for the first two months of the year until March. As such, we turn to some less-used but more high-frequency data to evaluate the extent of the fallout in China’s economic activity in the first quarter.
• We first analyze industrial production using a number of high frequency data, such as consumption of key resources, as well as sentiment in the manufacturing and the producer price index. All of them point to a fast and deep deterioration of industrial production, following the coronavirus outbreak. Another piece of information to gauge the evolution of fixed asset investment in the first quarter is property investment. The latter could be extremely weak when considering the very limited transactions of residential housing and land auctions after the Chinese New Year. As both of the above are two types of investment account for almost half of China’s total fixed asset investment, our calculations suggest that investment may only contribute to 0.36% of the GDP growth rate in first quarter of the year, as compared to 1.12% in the same period in 2019.
• For consumption, the (partial) lockdown of a large number of Chinese cities for fear of contagion is massively reducing the consumption of durable goods services (except for online ones). In fact, the demand for transportation, for example, has plummeted, as well as the outside activities such as restaurants and hotels. As such, we expect final consumption to contribute 2.3% of GDP growth rate in the first quarter of the year, as compared to 4.05% in 1Q 2019.
• There are several caveats to the above estimates. First, the duration and severity of the coronavirus is still uncertain, and so is any projection for the month of March. Second, the Chinese government’s policy response could start having an effect in this quarter. Other factors could actually further worsen our estimates if the disruptions in the supply chain or travel ban becomes more severe.
• Given the above, we offer a range for our GDP forecast for the first quarter of 2020 from 2.5 to 4 percent depending on how quickly the situation can stabilize and the effectiveness of the stimuli. It should be noted that a 4% growth in Q1, which would require improved data from March, is already 240 basis points lower than GDP growth in the first quarter of 2019. In other words, even in the best of circumstances, the coronavirus outbreak has already constituted a big shock for the Chinese economy.

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