China Traffic As Economic Indicator

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China Traffic As Economic Indicator

We had a great response to our work last week using Chinese air quality as a proxy for economic activity; today we will both include an update and extend the conversation further with a new data set. While not our typical “Disruption” fare, gauging the depths of the coronavirus’ impact on the Chinese economy merits the exception in our view.

Let’s start with the new information: TomTom GPS data from the 4 most populous cities in China. From its user base of 600 million drivers around the world TomTom assembles real-time information about traffic conditions. It has been performing this analysis for almost a decade, so it also has comparable data to prior years.

First, here is the data for Shanghai, with the dark red line showing the last 7 days of traffic congestion and the light blue line representing average 2019 levels:

  • Last week’s congestion was very low relative to historical norms, at 9% – 12% versus 54% – 59%.
  • Monday (yesterday) showed more cars on the road, but still less than half normal levels (27% vs. 67%) during the morning rush hour.
  • Tuesday’s traffic was lighter than Monday’s.

Now, here is Beijing over the last 7 days:

  • Beijing’s traffic seems to show more normalcy this week relative to that of Shanghai.
  • Monday’s morning and evening rush hours were about half of normal levels, although Tuesday was slower (like Shanghai).

Next, here is Tianjin (an hour’s drive southeast from Beijing, nearer to the coast):

  • Of the 4 cities we’re looking at today, Tianjin seems least affected by quarantine and travel restrictions.
  • Friday was normal, and although Monday/Tuesday are lower they look a lot like Beijing’s 50% of typical traffic congestion.

And finally, here is Shenzhen, near Hong Kong and a major industrial/technology hub:

  • This is where you see the full economic effect of the coronavirus on China.
  • Typical weekday traffic congestion runs 50% – 60%; on Monday and Tuesday it ran 10% – 14%.

All this foots with what we see in the national air quality data. Here is that data from what should be Wednesday’s morning rush hour, where on a typical day much of the country would be coded red for “Unhealthy”. Instead, large swaths are yellow (“moderate” air pollution) or orange (“unhealthy for sensitive groups”), especially around Wuhan.

Here is that chart (source below):

As for what all this means from an investment standpoint:

  • As we described in our “Markets” section, many more US companies will have to guide down this quarter. It is not just Apple, whose warning related primarily to local market demand. The traffic and air quality data show the Chinese industrial economy is running far below capacity, which means supply networks are either operating at a fraction of typical output or completely shut.
  • The scope of China’s response to the coronavirus is massive, visible in even rudimentary data such as what we’ve presented here, and clearly nowhere near an end. From a public health perspective that is a clear positive. Economically, it is of course problematic.
  • While the Beijing government is trying to get things back to something closer to “normal”, it is clear these initiatives are not yet working. That will take time, and we’ll stay on top of the data we’ve presented here to see when that happens and report back to you.

Sources:

TomTom congestion data (Beijing and other cities available): https://www.tomtom.com/en_gb/traffic-index/beijing-traffic

Air quality index (Wuhan, with map to see entire country): http://aqicn.org/city/wuhan/