China Claims 6.8% Economic Growth for 4Q 2008

If you believe the China fourth quarter GDP release, I have a bridge I’d like to sell you.

Some analysts see power consumption as a more accurate proxy of economic activity than GDP releases. Consider then the following report from Bloomberg on January 12:

Power consumption fell 4 percent in October from a year earlier, the first decline since March 2005, and 9.6 percent in November, according to state data. The government has yet to release December figures.

Now there is a discretionary element in power usage, and formerly profligate users can suddenly start belt-tightening. And since energy in China is subsidized, there were not strong incentives to curtail use in when oil prices spiked in the first half of 2008. So it is not unreasonable to think power consumption could decline faster than economic activity.

Nevertheless, a plunge in energy use seems inconsistent with even a slow level (by Chinese standards) of economic growth. Consider the key section of today’s Bloomberg report on China’s GDp release (boldface ours):
Gross domestic product grew 6.8 percent in the fourth quarter from a year earlier, after a 9 percent gain in the previous three months, the statistics bureau said in Beijing today. The figure matched the median estimate of 12 economists surveyed by Bloomberg News.

Nevertheless. the expected report was treated as if it were surprising:

“It’s an astonishingly steep slowdown,” said Paul Cavey, an economist with Macquarie Securities in Hong Kong. “We haven’t yet seen all of the pain.”…

The economy’s “implosion” poses a threat to the Communist Party’s rule and increases the likelihood that the government will devalue the yuan, prompting a trade war, according to Albert Edwards, a London-based global strategist for Societe Generale SA….

Exports will decline 6 percent this year, down from a 17.2 percent gain in 2008, according to Fitch Ratings. China has already stalled gains by the yuan against the dollar to aid exporters….

A sagging property market makes a quick economic rebound less likely. House prices across 70 cities dropped for the first time on record in December and construction will contract 30 percent this year, according to Hong Kong-based Macquarie Securities property analyst Eva Lee.

Economic growth may weaken to 2 percent in 2009, the slowest pace in at least 30 years, according to Ryan Atkinson, chief market analyst at New York-based hedge-fund manager Balestra Capital Ltd.

I’m waiting for the December power consumption data.

Print Friendly, PDF & Email


  1. IF

    Yves, you seem to be more suspicious of the GDP than of the unemployment numbers. The former is abstract, the latter life threatening to th KPC.

  2. bg

    Isn’t power consumption heavily skewed towards construction? Steel, etc? For example a 50% reduction in construction would probably reduce energy use far more than it would depress GDP.

  3. Anonymous

    How did the earthquake effect power consumption? Production?

    That whole area was being built out for hydro generation. There were several people who actually tried to link the weight of the water behind the dams and the earthquake. I spoke with a very good geotechnical engineer who said that it is not out of the realm of possibility, but there would be no way to ever prove it conclusively.

  4. Anonymous

    Japan announces exports are down 35 percent and uses China for its component manufacture. Korea and Taiwan also announced dreadful export downturns. For the real answer you need to look a lot more closely at the actual definition of GDP.

    GDP = consumption + gross investment + government spending + (exports − imports)

    If import prices fall significantly then GDP may not be a good measure of economic activity. It is a bit like asuming government inflation figures are mean’t to be an acurate reflection of inflation as perceived by the public.

  5. Cindy

    Chinese GDP figure is on YOY basis. Roubini has it converted to the US QOQ annualized system, and it comes out about 0%. I’ve seen another analyst showing roughly similar figure.g

  6. freude bud

    China subsidizes energy prices … but they do this by setting price bands which they retool to international market prices fairly regularly.

    So, for example, refiners who had been hemorrhaging money in July, began making a mint in September-October or so, because the government mandated price band was not changed from that time, meaning that in fact China was taxing energy consumption … well into December.

    For transportation fuels at least, the new price regime (instituted Jan 1) should float more freely with price … we will see.

    All to say that the picture is distorted, but if power consumption is down as much as in November, then I imagine you’re right.

    Yesterday, btw, Japan announced that _industrial_ power consumption fell at an annual rate of 13%.

  7. Anonymous

    Yves,where is the bridge,and what is it built of? If this is an old railroad trestle made of redwood heartwood I may have a buyer fo you…

  8. Viv

    Rubbish statistics, China is going ot contract sharply if it isn't already.

    No way, no how is China escpaing a deep recession.

    The electricity usage figures are far more accurate IMO. Those are declining sharply just like the economy there.

    Why sell a bridge Yves, when you can sell a Bridge backed security rated AAA by S&P (Stupid and Poors) and issue side bets on it? ;-)

Comments are closed.