The People's Bank of China and China activity data

There is no single announced policy rate 

A reader looking for the Chinese equivalent of a federal funds target or a Bank Rate will not find one, because the framework is built differently. The People's Bank of China operates a set of instruments that between them influence the cost and quantity of credit, and policy is signalled through movements in several of them rather than through one headline number. The Bank is also not independent in the sense the term carries in Europe or North America: it operates under the State Council, and monetary policy sits inside a broader policy apparatus that includes direct guidance to banks.

• The loan prime rate. A reference lending rate published monthly, formed from quotations submitted by a panel of banks, with separate tenors for shorter and longer maturities. New lending, including mortgages, is priced off it, so it is the rate closest to the cost of credit for households and firms.
• The medium-term lending facility rate. The rate at which the central bank lends to commercial banks against collateral at a medium tenor. Because the quoted loan prime rate has historically moved in step with it, a change here is read as the upstream signal.
• Short-term open market operation rates, principally the seven-day reverse repurchase rate, adjusted through daily liquidity operations.
• The reserve requirement ratio. The share of deposits a bank must hold as reserves. Lowering it releases lending capacity across the banking system at once, and it is a quantity instrument with no counterpart in most developed frameworks, where reserve requirements are negligible or absent.
• Structural and relending facilities directed at particular sectors, which are credit allocation instruments rather than general monetary ones.

The daily fixing and the two exchange rates 

Each morning before the onshore market opens, the central bank publishes a reference rate for the yuan against the dollar. Onshore trading is permitted only within a band around that reference for the session. The reference is described as being based on the previous close and on movements in a basket of currencies, together with a discretionary component, so it is neither a free-floating outcome nor a fixed peg but a managed arrangement in between.

There are also two yuan. The onshore currency trades inside China under capital account restrictions and inside the daily band. The offshore currency trades in Hong Kong and elsewhere without those restrictions. They are the same currency with different accessibility, they trade at different prices, and the gap between the two is watched as an indication of pressure that the onshore band is suppressing.

The monthly activity calendar 

The National Bureau of Statistics publishes a monthly bundle covering industrial production, fixed asset investment, retail sales and, at quarterly intervals, gross domestic product. Separate releases cover trade, published by the customs administration, consumer and producer prices, and credit aggregates published by the central bank. The official purchasing managers' indices are published by the statistics bureau and a logistics federation, and a separate privately compiled survey covers a different, smaller and more export-oriented panel.

Two calendar quirks matter. Fixed asset investment and several other series are published on a year-to-date cumulative basis rather than as a monthly figure, so the monthly rate has to be derived by difference and the published headline is a running total. And the January and February data are combined into a single release, because the lunar new year holiday moves between those two months and would otherwise make each of them incomparable with the same month a year earlier.

The holiday effect is not a minor seasonal wrinkle. Factory activity, freight movement and retail spending shift by weeks depending on when the holiday falls, and the combined release is the statistical office's own acknowledgement that a single month cannot be interpreted through that period.

Why the data reaches markets outside China 

China is the largest consumer of several industrial commodities, so a change in the pace of its construction and manufacturing activity feeds directly into the demand side for base metals, iron ore and energy. Currencies of economies whose exports are concentrated in those commodities are conventionally treated as sensitive to Chinese activity data for that reason, which is why an Australian dollar quote can move on a Chinese release with no Australian content in it at all.

The transmission is real and it is also indirect. It runs through expectations about future commodity demand rather than through any contemporaneous flow, and the relationship between a given release and any particular price is not stable across periods. Commodity exporters have also diversified their trade patterns over time, which weakens a correspondence that was stronger in earlier decades.

The data quality question, stated fairly 

Chinese official statistics attract more scepticism than most, and the reasons are worth stating precisely rather than dismissively. Provincial output figures have historically summed to more than the national total, which the statistics bureau itself has acknowledged and worked to correct. Some series have been suspended or discontinued after producing unwelcome readings, including a youth unemployment measure that was withdrawn and later reintroduced with a changed definition. Quarterly GDP is published with an unusually short lag and unusually little revision by international standards.

None of that establishes that a given figure is wrong, and the practice among analysts is not to reject the data but to triangulate it against measurements taken outside the statistical system: electricity generation, rail freight volumes, port throughput, the import statistics of trading partners, and satellite-derived activity measures. Those alternatives have their own limitations, and the honest position is that Chinese activity is measured with more uncertainty than activity in economies with longer-established independent statistical agencies.