Whereas yesterday we learned that Chinese September electricity consumption had dropped to a multi-year low of 2.9% Y/Y (ignoring the Chinese New year data aberration of -7.5% from January which should be a blended reading with the February surge of +22.9%), down from 3.6% in August, and the lowest since August 2010, today in turn we find that the flip side to the this number, electricity production, was an even bleaker +1.5%, and the lowest in three months. And while it has been rumored that China has an incentive to manipulate the former down, this has been offset by manipulating the latter - output - up. Which is why whereas the consumption data implies a modestly weaker GDP, which declined and missed the official target (if ended precisely as the goalseek-o-tron expected), it is the electricity production data that is the outlier, and which indicates that in reality the GDP is now trendlining well below the official 7%.
Power production in September was 390.7 billion kilowatt-hours (kWh), down 10 percent from August and the lowest since May, data from the statistics bureau showed on Thursday.
Annual growth in power output has slowed markedly from the double-digit rates posted most of last year, as demand from core industrial users in the steel, cement and smelting sectors weakened on the back of China's economic slowdown.
China's GDP grew 7.4 percent in the third quarter from a year earlier -- in line with forecasts from economists polled by Reuters -- the first miss of the official target since 6.5 percent growth in the first quarter of 2009.
Why is electricity consumption (or production) important. Recall this:
China's GDP figures are "man-made" and therefore unreliable, the man who is expected to be the country's next head of government said in 2007, according to U.S. diplomatic cables released by WikiLeaks.
Li Keqiang, head of the Communist Party in northeastern Liaoning province at the time, was unusually candid in his assessment of local economic data at a dinner with then-U.S. Ambassador to China Clark Randt, according to a confidential memo sent after the meeting and published on the WikiLeaks website.
The U.S. cable reported that Li, who is now a vice premier, focused on just three data points to evaluate Liaoning's economy: electricity consumption, rail cargo volume and bank lending.
"By looking at these three figures, Li said he can measure with relative accuracy the speed of economic growth. All other figures, especially GDP statistics, are 'for reference only,' he said smiling," the cable added.
And yet despite its economy already approaching the landing strip with no undercarriage, the PBOC refuses to ease and instead relies on daily reverse repos. Why? Simply: unlike in the US and Europe, where the administration can pretend there is no inflation, and populace can ignore what it sees every day, and believe big brother, in China this trick would never fly. Furthermore, China is now concerned it will get to import inflation from not only the US but Europe as well, and everywhere else: recall that other key trading partners Japan, Australia, Brazil and Korea also cut rates recently (and likely will do so more in the future) confirming inflation, even with PBOC standing pat, is imminent. Then throw in the latent impact from this summer's US drought which will have long-term implications on food prices, and one can see why suddenly the entire world is without a source of credit creation in its biggest marginal driver of demand. In other words, the situation is now very much flipped to 2009, when it was precisely China that dragged the rest of the wordl out of the first phase of the depression.
Can Bernanke et cie. do it this time on their own, without China? We will surely find out soon.