Chinese Electricity Conclusions Reexamined

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By EconMatters

China`s 4th Quarter

China`s economy grew 7.9% for the fourth quarter of 2012,
signaling to some that China might be rebounding from a two-year downtrend in
economic growth. When it comes to Chinese data though, transparency issues
always rear their ugly head. 

As a result, many analysts look to Electricity usage to
confirm the economic numbers. Many times the electricity numbers are at odds
with the stronger economic numbers coming out of China, and analysts believe that
during this downturn, the actual growth numbers were much lower than those
published officially.

They pointed to lower electricity numbers that have dropped
off substantially more than the economic drop-off on a percentage basis. The conclusion
is that China is inflating the real growth numbers to paint a more flattering
picture of their economy.

Is this the right Conclusion?

When the latest economic numbers came out, analysts compared these
numbers with the electricity numbers, and they came to the conclusion that the
electricity numbers confirmed an uptick in economic growth in China. So their
conclusion is that the Chinese GDP numbers are correct.

Productive Growth vs. Artificial
Growth

I have my doubts regarding the Chinese growth numbers. But I
even have a bigger gripe with what I call productive growth. As in, not
building ghost cities for the sake of artificially pushing up economic
activity, if the finished assets are artificial, and will provide no productive
long-tern use to society.

For example, there are no ghost businesses in Silicon Valley
that are not trying to push the innovative envelope forward with greater
technology advancement which spurs legitimate economic growth for our society.
But this is another argument for another time.

Record Cold Spell in China

My focus is the takeaway from the Chinese electricity usage,
and the conclusions drawn from said usage. I don`t think we can draw the same conclusion
from the electricity numbers as analysts have done in the past for the
following reasons.

It was unusually cold for the fourth quarter in China, one
of the coldest on record according to meteorologists. Not just unusually cold,
but record breaking cold. The kind of cold that people cannot plan for ahead of
time.

I would expect that much more energy had to be used, and that
much more electricity would be required just to keep regular business
operations going, and keep the Chinese people from freezing to death.

Yes, it was that freaking cold in China! The numbers made me
want to move to San Diego, and I live in a pretty mild climate during the
winter.

Coal, Heating Oil, Electricity should
all Surge in 4th Quarter

I think given the numbers, that electricity usage should
have set records just to account for the record breaking cold spell that made
up a significant portion of the fourth quarter.

In fact, I attribute much of the increased smog to the extra
running of coal fired power plants to help buffer the effects of these long
cold fronts in China.

Therefore, any uptick in coal, electricity, heating oil in
China needs to be taken in the context of one of the coldest spells on record
in that country, and we should not draw the conclusion that these commodities
increase in usage is a sign of an uptick in economic growth for the country.

Too soon to tell if China has truly
bottomed

China may very well be improving, but I would expect better
growth numbers from the fourth quarter anyway, even if their economy is still
trending down.  I think it is too soon to
tell if China has actually bottomed from their two-year downturn in economic
activity.

We will have to wait and see how 2013 plays out.  But given the extreme cold period of the last
quarter, I think looking for electricity usage to confirm Chinese GDP data is
problematic this time around. Things aren`t always as they appear.

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