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.