China`s economy grew 7.9% for the fourth quarter of 2012, signaling to some that China might be rebounding from a two-year downtrend in economic growth. When it comes to Chinese data though, transparency issues always rear their ugly head.
As a result, many analysts look to Electricity usage to confirm the
economic numbers. Many times the electricity numbers are at odds with
the stronger economic numbers coming out of China, and analysts believe
that during this downturn, the actual growth numbers were much lower
than those published officially.
They pointed to lower electricity numbers that have dropped off
substantially more than the economic drop-off on a percentage basis. The
conclusion is that China is inflating the real growth numbers to paint a
more flattering picture of their economy.
Is this the right Conclusion?
When the latest economic numbers came out, analyst
compared these numbers with the electricity numbers, and they came to
the conclusion that the electricity numbers confirmed an uptick in
economic growth in China. So their conclusion is that the Chinese GDP
numbers are correct.
Productive Growth vs. Artificial Growth
I have my doubts regarding the Chinese growth numbers. But I even
have a bigger gripe with what I call productive growth. As in, not
building ghost cities for the sake of artificially pushing up economic
activity, if the finished assets are artificial, and will provide no
productive long-tern use to society.
For example, there are no ghost businesses in Silicon Valley that
are not trying to push the innovative envelope forward with greater
technology advancement which spurs legitimate economic growth for our
society. But this is another argument for another time.
Record Cold Spell in China
My focus is the takeaway from the Chinese electricity usage, and
the conclusions drawn from said usage. I don`t think we can draw the
same conclusion from the electricity numbers as analysts have done in
the past for the following reasons.
It was unusually cold for the fourth quarter in China, one of the
coldest on record according to meteorologists. Not just unusually cold,
but record breaking cold. The kind of cold that people cannot plan for
ahead of time.
I would expect that much more energy had to be used, and that much
more electricity would be required just to keep regular business
operations going, and keep the Chinese people from freezing to death.
Yes, it was that freaking cold in China! The numbers made me want
to move to San Diego, and I live in a pretty mild climate during the
winter.
Coal, Heating Oil, Electricity should all Surge in 4th Quarter
I think given the numbers, that electricity usage should have set
records just to account for the record breaking cold spell that made up a
significant portion of the fourth quarter.
In fact, I attribute much of the increased smog to the extra
running of coal fired power plants to help buffer the effects of these
long cold fronts in China.
Therefore, any uptick in coal, electricity, heating oil in China needs
to be taken in the context of one of the coldest spells on record in
that country, and we should not draw the conclusion that these commodities increase in usage is a sign of an uptick in economic growth for the country.
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