China's Business Cycles and Early Warning Indicators

We developed an early warning indicator of China economy which quickly forecast economic downturns. We determined peaks and troughs of China’s business cycles by the Composite Index (CI) that is produced by The China Economic Monitoring and Analysis Center (CEMAC). Using the information of peaks and troughs, we developed the indicator that forecast the business conditions one year ahead by probit model. According to this indicator, China’s economy could be in recession by as early as the first half of 2008. The reasons of recession are inflation, the over valued stock market price, and slowdown of United States’ economy.