The China Cyclical Activity Tracker
The China Cyclical Activity Tracker, China CAT, is an alternative measure of China’s economic growth based on research in Fernald, Hsu, and Spiegel (2020).
The China CAT index measures fluctuations in Chinese economic activity by combining eight non-GDP indicators in order to measure deviations in year-over-year growth relative to trend. As described in Fernald, Hsu, and Spiegel (2020) and Fernald, Gerstein, and Spiegel (2019), the China CAT can be interpreted as a weighted average of these eight indicators (consumer sentiment, electricity production, exports, fixed asset investment, new floor space constructed, industrial production, rail freight shipments, and retail sales).
The China CAT represents deviations in year-over-year growth from trend for several reasons. First, to control for seasonal factors, all indicators are measured in four-quarter growth rates. Second, low-frequency trends are removed from these growth rates before estimation. Intuitively, because the data series have different trends, the index would otherwise be a mix of those trends as well as cyclical effects. Third, the detrended data and the resulting China CAT index are normalized to have a unit standard deviation. That is, the typical degree of dispersion in the data (as measured by the standard deviation, which is a statistical measure of variability) is normalized to equal one, in order to account for the fact that some series are more volatile than others. This normalization thus equalizes the signals from a given magnitude shock across all of our indicators.
The index was created by using a statistical technique known as principal components to capture as much variability as possible in the individual series. Conceptually, this index is similar to the Chicago Fed National Activity Index (Brave 2008). Fernald, Hsu, and Spiegel (2020) argue that this index provides a more accurate assessment of fluctuations in economic activity in China than reported GDP alone.
The Figure shows available data for the China CAT, reported GDP growth, and China’s import growth. Import growth is measured using inflation-adjusted trading-partner exports to either China or Hong Kong (excluding trade between the two). China’s trading-partner-reported imports provide a measure of Chinese economic activity that is independent of the Chinese statistical authorities. (Trading partner imports are probably more informative about activity before 2018 or so, when trade disputes may have disrupted the signal from this indicator.) The GDP line corresponds to the difference between GDP growth and its estimated trend pace. To ensure that the typical variability in each series is similar, the data have all been rescaled to have a unit standard deviation.
Over the past four quarters ending in the second quarter of 2022, growth in cyclical Chinese economic activity was -2.18 standard deviations from trend.
Brave, Scott. 2008. “Economic Trends and the Chicago Fed National Activity Index.” Chicago Fed Letter 250 (May).
Fernald, John, Neil Gerstein, and Mark Spiegel. 2019. “How Severe is China’s Slowdown? Evidence from China CAT.” FRBSF Economic Letter 2019-26 (October 7).
Is China Fudging Its GDP Figures? Evidence from Trading Partner Data.” John G. Fernald, Eric Hsu, and Mark M. Spiegel. Journal of International Money and Finance, Sept 2020
China Cyclical Activity Tracker (China CAT) data (Excel document, 129 kb)