Over the years we’ve had two tech-enabled “hacks” that have given us an edge at looking at the Chinese economy in real-time. One was TomTom traffic congestion data across all of China’s major cities, hour by hour. On any given Sunday evening NY time we could see if that weekend’s traffic in Beijing or Shanghai had been stronger than usual (indicating a strong consumer) or if Shenzhen’s roads had been clogged the week before (indicating strong export demand for technology products).
But … About 6 weeks ago the TomTom China data disappeared from their website. We assume this was part of the government’s new focus on national data security. Frankly, we’re surprised it took them this long. This was a treasure trove of information and no doubt everyone from the CIA to MI6 used it to measure China’s economy just as we did.
That leaves us with remote air quality readings as the one remaining real-time measure of Chinese economic activity from an independent source (at least as far as we know and believe us … we’ve looked). These are freely available (link at the end of this section) and over the years we’ve found them to reliably track the traffic data we used to see. During the initial stages of the pandemic in Q1 2020, they also accurately captured the difference in economic activity between areas like Wuhan and other metropolitan areas around the country. Dirty air is clean data …
The idea behind “air quality as economic data” is intuitive: air pollution correlates with industrial production and consumer activities like automotive commuting/shopping trips. Also, since we have daily readings from the last +7 years for every major Chinese city, we can compare 2021 to prior periods like 2019. That’s the last full pre-pandemic year and should be an easy comp given US-China trade tensions at the time. Yes, China has been working on cleaning up its air quality over the last decade, but those initiatives shouldn’t overly skew a comparison between 2021 and 2019 since they are just 24 months apart.
To kick things off, here are Beijing’s air quality readings this year for PM2.5 (small particulate matter), color coded by day from green (good) to dark red/purple (highly polluted); day counts appear in bar chart form for each month on the left and the individual days are on the right.
And here are the first 6 months of 2019:
There’s a lot of data here, but it clearly shows that Beijing’s 2021 air pollution is lower than that of 2019:
- There were 36 green-coded days (low pollution) in the 1H 2019 and 60 such days in 1H 2021.
- While there was a visible burst of activity in February/March 2021 (lots of red/purple days), there are fewer of those now. Some of that might be weather related, but the 2019 data shows Q2 is usually more polluted than Q1.
Does Shanghai show the same lower levels of 2021 pollution relative to 2019 as Beijing?
Here’s the 2021 data for China’s most populous city:
And here is 1H 2019:
Short answer: yes, Shanghai’s air quality this year is measurably better than 2019’s. The city has only had 5 “red/purple” days in 2021 versus 32 in 2019.
The last city we’ll look at is Shenzhen, a major tech production hub in the southern part of the country:
Here is 2021:
And here is 1H 2019:
As with Beijing and Shanghai, there’s many more green days in 2021 than there were in 2019: 79 versus 59 through the first half.
Takeaway (1): while this is just one dataset, it does make a convincing case that the Chinese economy is only slowly recovering from the economic effects of the 2020 pandemic. Nothing in this data is particularly troubling, but it does reflect less industrial production and personal mobility than 2 years ago. We’ve been cautious on Chinese equities because of the government’s Big Tech crackdown, but the air quality data presented here is another reason to steer clear.
Takeaway (2): we also see the echoes of America’s post-pandemic suburbanization trend in this data. One logical explanation for reduced air pollution is simply fewer people living in Beijing, Shanghai and Shenzhen. “Reverse migration” out of major Chinese cities to smaller third and fourth tier urban areas has been an issue for several years, but the pandemic may well have accelerated it. CNBC had a good article about this just last week (link below). What effect this has on labor productivity and national output remains to be seen, but the Chinese air quality data reminds us very much of the US urban traffic data we review every week. In both cases, big cities don’t look quite as populous as 2 years ago.
Air Quality readings (set to Beijing, enter other cities in the upper right-hand corner to see local data): https://aqicn.org/city/beijing/