Fra Fathom Consulting:
On the official measure, China’s annual GDP growth has stood at 6.7% in the first three quarters of this year. But many observers, including ourselves, are skeptical about the accuracy of officially published data. Our own estimate of economic activity, the China Momentum Indicator (CMI), suggests that growth is much lower than 6.7%, but that it has been accelerating since the turn of the year. Recent developments in industrials metals pricing support this view.
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The CMI stood at 2.9% in October, which was the highest reading since August 2015, and the fifth consecutive month that it has accelerated. Back in February, signs began to emerge that China’s policymakers were set to throw in the towel on rebalancing, and instead ‘double down’ on investment in order to boost growth.
Since then, the pick-up in the CMI has primarily been driven by those indicators most closely related to China’s old growth model. Railway freight volumes rose by 11.2% in the twelve months to October – the highest since May 2010. Meanwhile, the government recently announced a US$36 billion investment in railways around Beijing.
Investors appear to be increasingly pricing in China’s investment-led approach. The big story last week was the rally in industrial metals led by zinc, lead and copper. The first two increased in price by over 10%, while the latter was up 8%. They may receive further support in the New Year from the United States. The incoming administration is expected to materially increase infrastructure spending, suggesting the price of industrial metals could rise further still.
