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Global Economics Proprietary indicator says Chinese economy roared in June Our proprietary macro proxy for the Chinese economy shot up in June (see chart below) driven by net exports. The indicator is a gauge of how the economy performs in a given month. It is well-known that export tax changes from July triggered a rush by exporters in June – until now, however, we were unsure of the magnitude of this impact. It was large. From July, a number of key export items were subjected to higher effective tax (through a reduction in VAT rebates). Understandably, exporters made a rush to beat this July deadline, thereby creating a sharp spike in June exports. Such an export rush could not have occurred in isolation either. To export more, exporters must manufacture more, transport more and so on – the entire activity chain receives a boost. The June activity boost is evident in our macro proxy which shot up back to Q1 levels in June. While manufacturing components received some fillip (+5% in June vs. May), our net export component jumped a staggering 26%, seasonally adjusted, versus May. Exports were no doubt the driving factor. But, as we wrote in our recent Global Economics for Investors, China’s June net-exports were also helped by weaker imports, especially metal imports – a sign that economic momentum may finally be peaking. In our experience, the Chinese economy tends to have more inertia than its peers (whether the inertia is real or an artifact of China’s inaccurate statistics is anyone’s guess). For this reason, the June spike, although driven by a one-off tax change, may not be entirely reversed within the next month itself and, instead, may smooth out over a few months. In any case, the June spike does not come as a surprise as the tax-related export rush was widely reported by the media. Our macro proxy has now quantified the impact for us – the boost was significant and the economy boomed. It remains to be seen if a part of this momentum will be sustained, going forward.