In an odd admission of the possible fallibility of a centrally-planned economy, none other than Chinese Premier Li recently noted, "we should never assume that we few at the top have more insight or power but should try to mobilize the intelligence and creativity of the many thousands of our people so as to create unrivaled value." Perhaps the Federal Reserve would do well to listen. However, Li did not excuse himself from the need to spin how well things were going. On the heels of our 11 awkward Chinese fact charts, Li explains "the Chinese market is booming, the economy strong [sic]. Enterprises are the mainstay of the market." However, as Diapason Commodities' Sean Corrigan, when trying to confirm this 'fact', "discrepancies abound."
Via Sean Corrigan of Diapason Commodities,
O Mirabile dictu! Just as Premier Li and a whole host of other members of the Madarinate told us handily in advance, the Chinese economy showed signs of ‘stabilization’, nay, actual improvement in both the all-important the GDP release for QII (7.5% v 7.4%) and the industrial production data for June (9.2% v 8.8%).
And why not when, pressured from above to ‘frontload’ their outlays, local government expenditures rose 16.4% year on year in the first half (and 6.1% in June alone) while basic tax revenues (i.e., receipts not including land sales) declined by around 4%? Why not, again, when under the approach of ‘Every stimulus of a macro import begins with a micro step’, the credit spigots were once more liberally opened as the quarter wore on, to the point that June combined the second biggest jump in M1 on record with a 32% yoy leap in ‘shadow’ finance (admittedly that latter calculated from a base which included last year’s quarter-end liquidity shock)?
In trying to parse the numbers themselves, as ever with China, discrepancies abound.
For instance, a US-style quarterly-annualized count of GDP supposedly shot from 6.1% to 8.2% between the first and second trimesters, yet the increase in overall electricity use (on a YOY basis) dropped from 5.4% to 5.2% making that either a glaring sign of fiddled numbers or glowing testimony to a remarkable improvement in energy efficiency. I wonder which it might be?
Similarly industrial production is said to have gone from 8.6% annualized to 9.2% annualized, yet power consumption in that area slowed from 5.3% to 4.9%, apparent oil demand edged up by less than 1%, the CISA said steel consumption showed no growth whatsoever to May, and. all the while, rail freight tonne-kilometres fell 4.5% over the first five months of the year.
Furthermore, the 3mma YOY output numbers for a range of major industrial products came in as follows: glass, +5.1%; cement, +3.8%; motor vehicles, +5.0%; chemical fibres, 4.9%; non-ferrous metals, 5.7%; steel, 6.6%, and coking coal, -2.7%. No sign of any 7-, 8-, or 9-handles in there, you will note.
Coming at it from another angle, H1 Nominal GDP was supposedly up 8.5% on the comparable period in 2013, with QI up 7.9% and QII a faster 9.0%. Though this is perhaps a bit racy, it is a pace which is not entirely out of keeping with the path of the SOE revenue data (5.9% in HI, split 5.6% QI and 6.2% Q2). The quickening sits a little less comfortably, however, with the first five month tally of sales of the universe of ‘above scale’ industrial companies which is running at 8.1% YTD after putting in an 8% clip during first three months and 8.2% for the next two.
If problems lie – as they usually do in Austrian-style busts - up in the higher orders of production where the SOEs tend to be bunched, an undershoot of business revenue to end-consumption focused GDP is in no way anomalous (just look at the GFC in the States where NGDP only dipped 3.2% peak-to-trough even as private non-financial revenues plummeted by nearly a fifth) and the specific application of a minus-1% PPI deflator could even get us back to the (real) 9% given for IP (ignoring the slower pace of sectoral increases mentioned a couple of paragraphs ago).
What this does not do, however, is leave much room for any more general price rises in the compilation of the final numbers, even though their presence is a constant source of complaint whenever the locals are surveyed. Such use of artificially favourable deflators to boost the real GDP number is a charge that is commonly levelled against the NBS by any number of respectable commentators, but that is to take us into very murky waters, indeed.
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In any case, what is clear is that, taking the numbers at face value, debt levels are still rising with destructive rapidity in order to achieve even such spotty results as these.
Coming from the broadest perspective, Nominal GDP in the June quarter was an annualized CNY4.7 trillion greater than that of a year a year ago, but in that like period the stock of ‘total social financing' outstanding mounted almost four times as much, or by CNY17.7 trillion.