Chinese Electricity Consumption And Production Both Point To Sub 7% GDP Reality

Tyler Durden's picture

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%.

From Reuters:

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.

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DoChenRollingBearing's picture

China cannot save the world, nor I am worried that they will take us down.  China is very corrupt, and they (through history) have always blown it just when on the verge of greatness.

Apparently China's electricity production is indeed a good measure of their economy.  Being real and easy to measure.

The only thing that will take us down, is we who are doing it to ourselves.  Almost the whole world is in big trouble, there are few places to hide.  Gold is one.  Real physical gold well hidden.

vast-dom's picture

well we don't measure chinese gdp as function of their gov's gold purchases; if we did, then we could safely conclude that they are soaring relative to the West.

Orly's picture

Actually, gold purchases by the Chinese government have pretty much dried up.


vast-dom's picture

you believe anything marketwatch tells you? seriously???

Orly's picture

CLSA strategist Russell Napier...  <<Source

vast-dom's picture

china has purchased so much more gold than anyone could account for -- they have been doing this for a long while, even via HK we still can't be sure what they have imported. if we adjust for even their accounted for consumption gold would already be above $2,200. if we adjusted to exploding money supply we'd be well over $10,000/oz. just a few small oversights that marketwatch and CLSA strategists would fail to disclose to you, dear reader.

Orly's picture

I did not know that.

Irrelevant to the fact that purchases have dried up, Holmes.

CPL's picture

Gold purchases hardly dried up to china.  They are simply shipped in another format.


The west ships it's electronic garbage like cell phones, chips, ram, for every tonne of it that's an ounce or more depending on the quality of the "garbage".  Everyweek 100's of thousands of tonnes of e-waste.  Then old keyboards. roughly 3 grams of silver each keyboard, the membrane in the keyboard is silver stamped on it.


Plus there is no tungsten in those bars.  They remelt them.  Ever wonder why China opened it's own gold exchange?  ewaste and all the good things in it.



Neethgie's picture

Silver doctors is bullshit.

Wile-E-Coyote's picture

Silver Doctors is a load of shite. They print stories from any loon that has anything to say about PM's.

The fellow who runs it is out to make money, claims to be a doctor, then why the fuck is running a silver blog, I thought doctors in the US made a fortune.

onebir's picture

Russell Napier's usually very good, & I think he's likely right about Chinese surpluses ending. But

- a slowdown in China could well trigger flows into PMs (eg as people scramble to get wealth out of the country, which could well start to look unstable, out of overvalued property, and out of the RMB if that starts a downtrend vs the $ - which would have to be quite gradual due to US sensitivity)

- the gold price was much higher in September than in the previous few months, which likely choked off demand.

I've also read that the HK gold imports line doesn't tell the whole story (see Bron Suchecki's blog) with gold bullion trade partly reflecting some financial shenanigans between HK & mainland companies...

Urban Redneck's picture

Imports also don't tell the whole story in the sense that they don't include the 900,000oz PER MONTH mined domestically.

Then there is the issue of off-take agreement (Oceana being the most recent) where you have to look at mine production from each miner where a Chinese entity is the declared counter party in an off-take agreement (since client confidentiality is often stipulated, and as such the counter party isn't named in press releases) then you have to go the Export Ministry with jurisdiction over the mine and see if they even produce regular reliable statistics with a geographic breakdown, an if so whether China or Hong Kong is the apparent destination.  So most people take the easy way out just accept the predominate group think (i.e. use Hong Kong as a proxy and call it done).

Monedas's picture

That they are North Korea's "best friend" speaks volumes about their dark Socialist psychosis !

ptolemy_newit's picture

China has been moving key industries off the grid for a couple years. FREE electricity and no trade disputes.

maybe this electricity metric is not what it use to be?

Trimmed Hedge's picture

Looks like China's "green" initiative is underway!!

Surrealist's picture

Quite annoying seeing how much central bank control and stimulus is propping up the world economies and stock markets. Then we read the never ending nonesense of economic stabilizaton and recovery.  

whisperin's picture

Why aren't they just fudging the electrical consumption figures as well? Do we have a way to accurately gauge these figures?

Monedas's picture

Best indicator is quarterly coal mine deaths !       Monedas     1929       Comedy Jihad World tour   

Bobbyrib's picture

The US doesn't fudge its economic numbers. /sarcasm.

Yen Cross's picture

Anyone ever heard of this analyst. Personally, I think the guy needs to lay off the CHOOM. But here is his take on China.

 Click on the link to Business Insider.

ebworthen's picture

Try -1.5% if that.

Worse BLS than the U.S.S.A.

It will take several years for reality to shake out of the hopper, ready?

hedgehog9999's picture

Chinese GDP figures are BLS like. Electricity % growth is a much more reliable number therefore 7% GDP growth is inflated.  Is their inflation bigger than publically reported? or is the real growth more anemic?.....either way there is less growth than before....

HaroldWang's picture

Could be the soft patch from earlier in the year is behind us. Data from US and world econonies has improved nicely. No matter how hard you try or make up conspiracy theories, facts are facts. We're on the mend.

taraxias's picture

Proof that bullshit works !

Orly's picture

Then we can take the punchbowl away and get back to some normalcy, eh?

Wile-E-Coyote's picture

I always thought a good China index was the riot indicator.

lolmao500's picture

And even funnier : a lot of analysts said that the regime wouldn't hold power long if the GDP growth ever went below 8%...

It's gonna be funny in China real soon.

e-recep's picture

if china's growth is sub 7%, then the rest of the world has got be in the negative region. i know, my business is contracting since april 2011.

orangegeek's picture

China is a communist country.  Would you expect anything different?


China can build a few more  empty cities to fix this.