On the Measurement and Analysis of Aggregate Economic Activity for China: The Coincident Economic Indicators Approach

This paper reviews some of China’s high frequency economic indicators and our principal findings on their selection and use. Our aim is to develop a composite index of coincident indicators (CEI) which can be used to obtain timely information on the present state of the China’s economy and provide an appropriate measure to analyze China’s short-term macroeconomic dynamics. Notably, combining industrial production, retail sales, manufacturing employment, income of financial institutions, and passenger traffic volume works well as the method for dating business cycles for China. It shows that, over the past two decades, there was one marked recession which occurred in 1988:8 to 1989:12. In addition to this business cycle chronology we also develop a growth cycle chronology based on the deviations from trend of the CE which shows that there were four cyclical slowdowns since 1986. Whereas GDP growth lacks cyclical movements and appears to be dominated by trend and irregular movements, in contrast to GDP, CEI works well as a measure of cyclical dynamics and can contribute to the analysis of short term fluctuations of Chinese economic activity relative to its long term growth.