We’ve been seeing an even higher than usual amount of skepticism on China’s official data releases, as if such a thing were even possible, given the general dim view of Chinese government data. Some observers, including yours truly, had looked to electrical usage as a better barometer of economic activity.
Well, it turns out that one might not be so accurate either. Power generation has increased markedly. Does that mean the economy has turned? Not necessarily, as the Times Online tells us. (hat tip reader Michael) Aluminum smelting, which is very energy intensive, is up a great deal, not due to a change in economic activity, but the end of an arbitrage. But the story also suggests that other hard to manipulate data suggests at a minimum that the stimulus measures are having an impact:
….investors have increasingly turned to electricity generation numbers as their prime guide: the figures are drawn directly from the power plants, they are accurately measurable and they seem pleasingly difficult for the Government to manipulate.
The recent trend on electricity generation does seem appears to confirm the impression that China is booming again and the recovery resilient in the real economy: power growth rose 4.28 per cent year-on-year in July, which suggests things are starting to hum again.
But the conclusion could be wrong, say analysts. Glenn Maguire, chief china economist at Societe Generale, described himself as “not a fan” of electricity numbers as a gauge because they are “overly distorted by what is happening in heavy industry.”
Since the start of the year, Chinese aluminium smelting has been extremely weak because buyers were able to source the metal from abroad for less than they could find at home. With aluminium prices climbing back to nine-month highs, that arbitrage opportunity is disappearing. That has prompted Chinese aluminium producers to fire up their electricity-ravenous plants once again, and with them the spike in the charts. Because commodity analysts believe that underlying Chinese aluminium stocks are relatively high, the reactivation of production capacity may prove a short-lived phenomenon.
The situation, said Mr Simpfendorfer, “underscores the importance of not relying on single figures to interpret China’s economy. It also highlights the risks that the headline industrial and GDP numbers hide imbalances in the economy that may prevent the economy from finding a more solid base in 2010”
The distortions emerging from electricity numbers have pushed economists to seek other gauges, with many arguing that China’s statistical footprint is so big that there are plenty of external checks on Beijing’s numbers. Data on South Korean and Japanese exports to China is thought to be useful with the monthly freight carried reading, which is growing at a pace consistent with the effects of China’s stimulus package.
If the problem rests in gathering accurate data from such an enormous country with a lot of local independence and poor communications, then we should view lump total measures like GDP with heavy measures of skepticism.
Some of the measures that rely less on aggregation of a complete picture, and can instead be statistically accurate based on reasonable sampling techniques, should be more accurate if we assume China isn't literally cooking the numbers. The popular outcry to wage and unemployment data indicates they may well be. Who knows.
But between that and my natural cognitive bias, I found the deflationary PPI and CPI numbers related this morning to be compelling. Remember, the US can't unilaterally inflate: China must inflate as well, and probably faster than we do.
As an aside, I imagine this burst of stockpiling has about run its course and China would be wise to wait for commodity prices to collapse again before resuming packrat mode. But the overall strategy as compared to depegging or other so-called nuclear options has been brilliant(at least, from a Chinese perspective), and should be replicated as necessary.
I've had this bookmarked for a few days now, since I found it amusing.
Socialist realism lives!
From Krugman's blog:
August 5, 2009, 11:01 am
All in all, you’re just another brick in the Great Wall
The FT has a story about how Chinese economic statistics fail to add up. (I know you’re shocked.) So how are the Chinese dealing with it?
The criticism has prompted the NBS to launch a campaign last week, entitled “Statistical Feelings: We have walked together – Celebrating the 60th anniversary of the founding of New China,” to boost confidence among statisticians.
The campaign has already produced works such as: “I’m proud to be a brick in the statistical building of the republic.” In another poem, a contributor writes: “I can rearrange the stars in the sky because I have statistics.”
I have a vision of a huge march down Constitution Avenue, with the marchers bearing banners that read “Forcefully support the Bureau of Economic Analysis in its heroic estimation efforts.”
How about freight volume as a possibly reliable indicator? Freight volume up 1.6% Jan-May, GDP 7.1% Jan-June.
hilario…for more info on freight/logistics…all roads lead to china blog had an interesting (albeit bleak) analysis
(ffw to 2:25 to get to logistics)